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PE:4S MAL AND

CAFIDENTIAL

September 15, 1922.

My dear Mr. Gilbert:

Tour favor of the 13th instant is

ter ,re

me.

Ve intend to let our ma-

turing certificates run c:,ff to-day, and the result of a variety

f transactirns

*ill be to reduce our :-En holdilre EL)merhere in the neighb rho,- d of t32,000,000.

This morning we have $139,000,000 of Treasury n tee and certificates of indettedness (some six or seven millions
the atx,ve reduction
ship;

till

L

which are these carried f,r dealers

bring us down to less than $28,500,000 of our owti owner-

This compared vith $155,1)00,000 to

158,000,000 on July 1st.

estimate of earnin?s would indicate that with

of the

at the end

and

year we vill 5.

reserve banks, since the c:mmittee

ta...re than

all, ranee for

Lur present

the re:;ular char:as

earn cur dividend.

As

to all the

as formed and n .t including t: -day's trans-

acti,,ns, the reducti n in their investment acc. unt has ti tailed

The reducti n effective tc-day has n' t been reported

tr

us,

b

3101,000,000.
will probably be

t less than t50,000,000 more, including our
In view Lf thee facts. j.)L1 will realize that ve have witnessed a reduc-

tion since June when the committee tegan actual operations, that is in three and

one hale months, exceeding $150,000,000 ,r atout one third c r the whole acc:unt.
I do not think t1.at anything more than that could have been di_,ne without disburt

ing the money market, although ye too have suffered impatience at times that

ie

did lot progress faster.
P1ea'e do not consider, as might be implied from your letter, that I
personally,

a

chairman

of the committee, -r even the c-)mmittee

cr desires to attempt to exercise any cz,ntr:.1 over inve tments

of

the respective reserve tanks.




as a NhAs a, tempts
investment p, licy

ie had an understanding, as TA: kn.e, that

Honorable S. P. Gilbert

-2-

September 15,

investments in xcesS :'f vh-t io needed for earning

pun),

1f.'92.

see should be ally wed to

run off, and that operations sh uld be ccn-luct?d through the central c.mmittee.
ur influence has been dir-cted towards reducing the acc,-.unt right al hg, but we

have nu power, mr would we desire to exercise the
agents

policy

the Federal reserve banks t

:

pc

,er,

to be more than the

carry out their wishes in line with the

established at the April conference.

Your suggestiun that

e liquidate investments faster than we are

and at the same time reduce discount rates, I fear is rs

feasible, and certainly

I would want to di cuss it with you and with the Federal Reserve bard as
our directors very thoroughly before attempting such a pia grarme.

sell

as

My impressi' n

is that uur next mows must be to slightly increase the rate at whickt we buy
bankers acceptances) which will have a tendency,

f course, to distribute these bills

throughout the market, instead cf having thee accumulate in ..ur bands, and this,
it seem- to me, is more in line with th- p_licy which you advocate than wculd be

a reduction of our discount rate to

point which would invite borrowing by member

banks and which indeed sight prove to be inflationary rather than th'c reverse.
Certainly that tendency nigh+ be more likely to develop were
a 3 1/2 per cent. rate and at the same time to call in
the market, which n.uld pb

a

re to establish, say,

c. nsiderable volume cf money from

the general market rates at, ve what they now are.

Feral.' me to say persunally that I think Mr. Case has acoJaplished
wonderful result In what has been at ve rep rted, and is expect to c.,ntinue rluietV
along this line, using every eft rt to avoid any temp rary or even more extended
disturtance

.r

e,ney rates, and I have felt that we were fully meeting the views

of the Treasury, especially as these matters have been put forth in such detail
almost daily.

You may be interested in learning of the intention L.f certain of the
officers

of

reserve banks

tring out a thorough-going discussion of this whole

policy at the conference of governors which is



t.

be held in laehington on the 10th

Ron, rable U. ?. Gilbert

September 15, 1922.

of Cctoter.

As to the market generally for the government issues, chile there has
been a slight improvement for the last few daye, fc r at least three

r:s

past there

bean a constant decline and a really soft market.

the Furth 4 1/4 per cent. Liberty Lan
per cent.;
causes.

T,2

Phis to

attribute to a variety -)f

.ne is the adverse exchanges, that is, the e_.vement of funde

another, s...meohat more

and imps: se considerable horroings by the

main been Treasury

notes and

To are unable to

will become lam

Treasury.

Ve have constant evidence of a tendency cn the part

which are

to the lebt

active commercial domande .1" r funds;

and undoubtedly the third. is the apprehensi' n that the bonus bill

li.-uidate securities

illustrate:

ponds have d clined from high price 1 1/4

that is, from 101.86 to 100. RD.

for crop purposes;

r four weeks

payinf, the lowest rate

3'

of institutions to

return, which have in the

Treasury certificates.

lay out

a definite ;:regramme, in 'act nave no authority

to decide how rapidly the Reserve banks sh uld llouidate their holdings of certificates and noteb, but if you feel willing to take

the

resvnsitility c

f indicating

at what rate y u yourself would advise liquidating, upna teleph..ne sug_;estion aith
the figures stated coming from you I could arren ;0 pith eome of the Reserve
to join us
that,

in carrying out such a

It would hardly be possible to do

pr.,,,ramme.

vever, before the governors conference, at which time

statement of eerning aesets and

f

ranks

respective

h pe

t.

have a

earnin-'s from all of the Reserve bent

as en aid to consideration of this very matter.

P. S.

This letter

as dictated by

ty Mr. Care.
ii..,n_rable S. P. Gilbert,

The Undersecretary :f the Treasury,
Ilaellington, D. C.

5.RAR



7

r. Stron=;,

"2..

ut in h a

;nod

COPY- vITH

FZDERAL RESERVE BANK
OF NE /i YORK

PRIVATE AND CONFIDENTIAL

Dear 1.4r.

October

,

192.

Gilbert:

The resignation of the 3ritish Cabinet is no more
than I expected, and as I telephoneC, you a few days ago, it
was forecast in a cable which
received intimating the nrobnbility of a further delay in negotiations for the funding of
the British debt.
This delay will afford opportunity for the making
of certain investigations which we discussed (if this work has
not already been done), and I am taking the liberty of outlining
something of -nhat is in my mind in a letter to you rather than
Nwasworth because we have had opportunity to discuss it
to
at length and I have not been able to do so with him.
Mile -that I am writing is directed especially to the
British situation, it applies in greater or less degree to the
situation of all the debtor governments, and I refer only to the
British debt because that happens to be the one -thich is next to
be dealt

One of the most serious difficulties encountered by
the adjustment of reparation
the French Government in dealing
payments by Germany arises in my opinion from the fact that the
people of France have never been fully informed upon the subject
of reparations, that the sentiment exists in France that Germany
can nay and must be made to pay, and that no government can
remain in office which proposes a compromise or adjustment of
reparations which does not in a general way conform to a vell
crystallized public orinion on that subject.
In view of this
political situation, the Government of rance has been forced to
resort to the threat of occupation of the Ruhr and other sections
of Germany in the event of a default, a course which mould be
disasterous to the French because of the costs involved and
because an army cannot collect reparations. kily best opinion is
that this situation has arisen almost entirely from timidity by
the French Government whichkas led to an unwillingness to disclose
the true facts and that it 'could have been wiser at the outset for
the Government of France to squarely face the quetion of reparations upon the theory that Germany can be made to pay only 71thin
her capacity to pay and no more.
These remarks are intended to draw attention to the
rather paralell situation in this country. Our people have been




led to believe (as the result of statements Vhich 're b-sed
upon inadequate data - and some of them inspired by -olitical
motives) that in general most of the debts ovin, to this
They cancountry by the debtor governments are collectible.
not state the grounds for this belief, but are simply repeating
What they have heard in a general way from various sources. It
is certainly time that a careful painstaking investigation of
the debt situation uron a basis of capacity to pay should now be
conducted, and laid Lefore the country at the proper time and in
in order to establish the basis of such an
the proper way.
investigation, it is yell to consider, first, in what way 9nyments
may be made. All students of this subject will agree that for a
country like England, the making of external payments, such as
this, can be accomplished only by the following means:
FIRST:

Shipments of gold.
SECOND: Export of goods in excess of those imported.
THIRD:
By substituting private loans in this
country for the government loans.
FOURTH: By the liquidation of foreign investments
owned by British nrivate investors.

An investigation of these four possible methods of
payment should disclose something of the capacity of the British
nation to repay the debt now owing to our government and esnecially
whether that capacity 3s equal to m eting the limitations imposed
by the funding bill.
FIRST - As to gold shipments; the gold resources of
Great Britain should be carefully examined and a study should be
made for the purpose of disclosing to what extent, on the one
hand, Great Brit in can afford to part vith gold and thereby
indefinit-ly defer the reestablishment of the told standard, and,
on the other hand, to what extent it is safe for us to receive
further shipments of gold without dislocation of our domestic
This investigation, it seems to me, should
credit situation.
include an examination of the African eold production, of its
Present dispostion, of the extent to which India can command
gold from Africa and from England, and, as throwing some light
upon gold movements, the history of gold shipments between England
and this country should be reviewed together with their relations
to -rices, interest rates and trade balances.
Such an investigation I am certain will disclose that
the possibilities of gold payment are exceedingly limited unless
we are nrenared to face a complete and long-extended breakdown of
the gold standard in Europe and the rest of the vorld, and some
real peril to our own monetary system.
SECOND - The extent to which England may be expected
to repay by excess shipments of goods to the rest of the world
over imports will be most difficult to ascertain, but some light
may be thro'vn upon the subject by an examination of the 'ritish
foreign trade nrior to the outbreak of the war; the extent to




which the result of that trade as reflected in the visible
movement of goods, plus the invisible balance of payments,
may be expected to produce a net fund applicable to the service
In this connection, the new tariff should be
of the debt.
studied to ascertain what effect it may be presumed to have
upon those classes of commodities which we have heretofore
habitually purchased in England.
THIRD - The extent to which the British Government
may be able to borrow rrivately in our markets in order to repay
loane to the Treasury will be governed not only by market and
_investment conditions here, but also to some extent by the degree
to which we may consider such a policy desirable from our own
Point of view. For example, if the payment of interest and
amortization of the principal necessitated the British Government
borrowing from '700 to 7300 millions a year in this market, would
The various
it be wise to nermit or encourage them to do so?
considerations to be weighed in this connection should be examined
and discussed and it should be borne in mind that such a program
entire debt owing to this country would ultimately
applied to ti
result in such a vast interest by Lmerican investors in foreign
govesssment loans that might in the course of years have a profound
effect unon our political relations with other countries.
FOURTH - The amount and character of British investments
in foreign countries should be examined for the puspose of ascertaining the possibilities of oayment by recourse to these investments,
but obviously a study should be made as to the method by which such
inv stment could be made available for the purpose.
I think it mould
be safe to say that there are only two methods which could be employed
to this end, both of which involve dangers of a very certain
First, the British Government might exnronriate them as
character.
Such a policy would arouse such bitterness
wss done during the war.
of feeling that I very much doubt if it could be resorted to except
under conditions where we would be obliged to admit that we had
completely lost the sympathy and friendship of the British people.
The other means would be less obvious to the public but equally
dangerous to the restoration of stable economic conditions. If the
pound sterling under the pressure of obtaining dollars in order to
repay this debt became progressively depressed, as was the case
after sterling was unpegged, there would gradually arise a premium
upon foreign owned securities in the hands of British investors,
But any such
Which might lead to the sale of large amounts of them.
occurance would be so disorganizing to commerce, including that of
our own country, that one would hesitate to advocate such a policy
of destruction.
I have iritten the above simply as suggestions for a
course of investigation dePigned to throw some light upon various
means of payment which exist, upon the extent to which they can be
It will probably
employed, and upon the effect of their employment.
be found as the result of such an investigation that the repayment
of the debt to this country by Great Britain can be safely
accomplished through the employment of resources which will be




-4found available under all four of the means suggested, but that
a period of 25 years -all not be sufficient for the purpose,
that the amount of payments most be small at first and gradually
increased, and that in connection .yith the scheme of payments
adopted, some element of flexibility must be introduced so that
the rate of payment may be reduced in case the pound sterling
becomes depressed and may be accelerated in case it should rise
above parity with our currency.

May I take the liberty of sugusting that the
additional time now afforded as the result of the change in the
Pritish Ministry can well be employed in an iveetigation along
some such line as that roughly outlined above. The data alren y
in possession of the Department of State, the Treasury Department
and the Department of Commerce, and accessible to the Federal
Reserve 73oard and the Federal li,?serve bank of New York can I
believe be marshalled in the course of a few months,. If ae I
should hope, it resulted in a clearer view of what great Britain
is capable of paying and how long a peAbd should be allowed for
the payment, then it seems to me the Funding Commission could
go before Congress with a definite report and recommendation
which would in fact contemplate the entire repayment of the debt
by the British Government, but not necessarily within the strict
limitations of the funding bill, and here would be afforded
opportunity for a possible and friendly solution of the problem
as to the principle debtor.

Yours very truly,

(Signed)

Honorable S. P. Gilbeet,Jr.,
Under Sacreatry of the Treasury,
Treasury Department,
Xashington, D. C.
BS,




Benj. Strong

October 28, 1924.
Dear Mr. Giltert:

My absence on a rather badly needed v.cetion and ay being laid up,
unfortunately, a considerable part of the time I was away, have eel:Lye:1 ay

writing you e letter which it h,.8 long been in my mine

to send.

First, of course, I want to give you my hc.artieet gooc-wiehes for many
years df heppinv-e with tour nee
me to have been able to attend

It would have been a great

wife.

your

wec1:ing an.. to have

wishes to you ,enc to her on the spot and

your

c.n be reseed as to your It:edifice-

knowing of your

tione, enc.; no man, efterispending the !may yc-rs you have
to hie country,

cen doubt for a

the spirit of a real -patriotic
a

treat succors.

wocent that you

in a patriotic

have dna, rteeen

service, and it is that

service

this teedc in

spirit which Ain

r: are it

I ao wish you a happy ena suc-Alseful ctroer.

You ao not need tm have my assurnc
sisals at your service.
ways be milling

appointment to one

r world, but upon your very 6 0 0 G judgment

t-

No question

in accepting the appointment.

extended these good

verbally.

Alen I want to congratulate you not ,aly upon

of the most retponsitle positions is

pleasure to

and ready

trf.t

_

that everything at my commend is

z, cable us,

or sena for us,

to help.

frith every gooc wish, I am
Sincerely

Honorable 5. Parser Gilbert,
Agent General of Reparations,

c/e Morgan, Harjes & Co.,
http://fraser.stlouisfed.org/
Parie, France.
Federal Reserve Bank of St. Louis

,

J Jr

friend,

end me will al-

6.53.19

J. P. MORGAN & CO.
CABLE DEPARTMENT
NEW YORK.

June 18, 1925.

.20PY OF CABLE DESPATCHED TO MORGAN. HARJES & CO.. PARIS

63233.

July.

OR S. I-AR/C.1M GILBRT.

Bringing daughter and maid.

Planning arrive Berlin early
Norman going also.

B. Strong

RCL




Grand Hotel Britannique,
Spa, Belgium,
July 23, 1925.

My dear Gilbert:

This is just a line to let you kncw how greatly we
enjoyed our visit in Berlin, and especially the opportunity to
have a good time with you and Mrs. Gilbert.
I !Jam struck by how well you looked, and I had expected something rather different.

BUt what gave me especial pleasure was the universal
satisfaction expressed by the Germans, as well as by your own
colleagues, in your wcrk at Berlin.
There is still some uncertainty about our plans.
We leave Sunday for Brussels, and probably by Wednesday will be
in Paris, where we are trying to get accommodations at the
Plaza l'Athene Hotel in the Avenue Montaigne.
But I shall have
a mail address at the Bankers Trust Company anyway.
After a
few days in Paris, we shall likely run off to some place on the
shore for a week or so, and I am just wondering whether you will
be near Trouville then in case we should decide to go there.
Then we could have some more visits.
Please give my warmest regards to Mrs. Gilbert,
and to your Sister, and tell them that Mrs. Humphrey and I will
both be much disappointed if we have to leave Europe without
seeing all of you again.
With warmest regards and congratulations as well,
ELM

Faithfully yours,

S. Parker Gilbert, Esq.,
Agent General for Reparation Payments,
33 Luisenstrasse,
Berlin, Germany.




Rotel Ma!eetic
Paris, France,
August 15, 1925.
My dear Mr. Gilbert:

Due to some delay in forwarding my mail, your letter of July
30 did not reach me until just before my return to Paris.
Thank you for your thoughtfulness in seeding se a copy of
Dr. Schachts statemAnt, the explanation of which you gave ma verbally.
Of course it is most interesting and helpful.
I am glad you feel as you do about our vieit to Berlin.
Corner Norman and I both got a lot out of it, such of it being due to
your courtesy and help.

Mrs. Morgan's sudden death may, of course, affect Dwight's
plann, but I am not sure to *at extent, so I am rather Counting upon
seeing you and him in Paris next Sunday.
I as obliged to be in
Swit!erland on Friday, but will be back here Saturday evening, and if
you are in Paris I hope you can give me a call at the Hotel Majestic
(Room 380) so that we can have a chat, especially about the debt matters.
The reports from home are rather discouraging, and I as u little anxious
about it.
It may well be that such a trip as you propose will be of
the greatest imnortance.
Please, give my warmest regards to Pre. Gilbert, and the same
to yourself.
Sincerely,

Mr. S. Parker Gilbert,
Grand Rotel,
Cabourg, Trance.




Rotel Majestic,
Paris, France,
August 19, 1925.
Dear Mr. Gilbert:

Yours of the seventeenth has just reached me, and this
morning's papers at the sem) time advise of the successful conclusion
of the Belgian negotiations along a line, DO far as I e gather
from the meagre account, which ought to be satisfactory to both
debtor and creditor.
Of ccurse I am delighted, as I knew you will
be.

I am expecting to lunch with Simon today, and tomorrow
shall have a visit with Rubineau, and later is the afternoon with
Caillaux.
Possibly I emn tall a little better after that what
may be in the 'Ind as to the ftimeh debt.
rd of course I will be
delighted to see Pon mad have a chance to talk it all over.

to

are delighted to hear that you are enjoying Gabourg,
and that the weather is good.
Please give al Ldst regards to Mrs.
Gilbert, and the ammo to yourself.
Sincerely

Mr. S. P. Gilbert,
grand Motel,
Gabourg, France.




urn,

111,

P5IVeTE

Septeml*r 50, 1925.

My dear Mr. Gilberts

Your letters of September 14 end 15 and the various enclosures
retched me by the same mail.

Under separate

iover I am ten-An, you the con-

tainers in which they cane, be in both cress tne seals sere broken and the
envelopes completely open.

Tr* marks on the envelopes inrlicete that they ceme

by ordinary mail, une were posted frog t Paris station located on the Avenue
de le Perouee.

So I have not we inquiry her* as to their postiLly having

been mishandled, ab they did not seem to oome by pouch.
Of course,

I

am replyint: to your letters quite personally, a3 I

gatner you expect no to de, an4 I am expressing suite en unprejudiced view of
the matters dealt with in your letters, as it hat always been my opinion that
our oo.intry has s greater interest in the emceess of the Dawes Plan generally
than it has in the oollection of the mo.srate amount', of money which the raves
Plan night produce for the li;guidation of imdebtedneas directly to be rcptid

by test means to the United States.

This is, indeed, t smtll consideration

compered to the great Importance of financial and monetary reconstruction in
Europe en.; the reeetabliehnent of nasal facilities for the conduct of trade
between our country

id the European oountrisa of 'acted by the neves Plan.

I am /Answering both letters in this, es tne subjects are ineepable.
Ae to the statement of the Ministry or Flatness
mind that after the principles o:
the adoption of the Plan,




This rectlls to Sy

the Dawes Plan hac teen published, but before

I wrote to Mr. Yonne: pointing out to him that the

S

Honorable 5. F. Gilbert

2

9.50.25.

maintsnance of tile international value of the mark would depend in Germany upon
the credit policy of the Reichebank, just 88 in all other modern berikiny countries

currency stability depends upon the policy
deE;ree of freedom or

of the central bank of issue.

The

ion imposed by the policy of the bank upon borrowing,

and the extent to which it

controlled the volume of currency and credit in use,

would, in ft ct, be a vital factor in the success

or

failure of the plan. Further-

more, inasmuch as the scheme for accumulating murk balances by the Transfer

with the right

contesplatea a possible maziaum of 5,000,000,000 marks,

the

Transfer Agent to employ those balances in

the

Transfer

Agent was of importance

t..e

Agent

vested in

sartets, the policy of

money

(Kiwi to, if not greeter than, that of the

Reichubank.

Very much. to ay surprise, when I was in Genie:1y, the eaplenstion of

the methods amp oyed by the Reich in the L:le-line of the public funds, wisely

those of the bttte, of the Poeta-1 Authorities, of the Railway Coa,:say, end of
the Incur nee Office, indicated the possibility that the Gerarn Government was

itself retaining

control

direct

over

La accumulation of

Lind funds

revenues

which might Mveloo to a veal am where the Reich would it..elf become
tae credit "haricot

ty in the

upon

of even

stability

of the

credit management

to

magnitude

introduce a third element of uncertain-

value of the mark, so far ss stability

within the borders

or Germany.

sitle amount of public funds, and the evidence
lated

beyond

expectation, and that

some of tee German
to my

of the German

that

fundamental of

all

would depend

Your estimate of tae poe-

these have

similar accumulations may be

tea, due to the surpluses

mind that the moat

ft ctor in

already accumu-

takin,-, pines in

of State revenues, all indicate

influences bearinq upon the value

curre;Icy centers neither in the Reichstank alone, nor in the

Transfer Agent alone, nor, 1.1detd, iEi a policy on the part of both which
be in accord, but now will depend, in Let, upor



triple

might

arrangement between

rl

.30.26

three parties, the intereete and purposes of one of which may be edverce to the
°there.

It has eleeya been considered unsound public finance for

Government

to accumulete unduly large surplus bank telencee from tazetion or borrowing, just
as it has &lways been considered unsound public

inance for the state to barrel%

heavily from the Bank of Iaeue.

The Dewee Plec upecificlly de'lt with tns latter possibility by limiting the poser of the Reich to borrow from the Reicesbenk.

It may not be so

specific in imposing reetrictions upon the Reich as to eccumuletion of surplueee
of revenue and the method by which those might be ueet.

The lengutgo of the

Dawes Plan is specific that the Reichebank ehall be the depoeitary of the State.

Possibly the inference may also be drawn from this provision teat the Reich was
not expected to :'unction as a

the ordinary sense.

benk nor to heve power to become e voce y leneer in

I can see noting but difficulty end oonfueioe resulting

from any such eituation ee now eppeers to exist.

I have elways appreciated

the need for eooper!tion end understanding between yourself and the Reichsbenk, but

have also felt thet failing cooperation, the power nevertheless rested in your
nads to erovide a counterbalance to either an ueduly liberel or ac unduly restrictive policy by the heicesbenk, bectuee yo., mould indeed be eble on the one hand to
ofl:eet s policy of restriction by yourself becoming & large lancer, and you could

likewise probably meiettin a position mere, in the face of too libert.l a policy
by the Reichabank, you could counterbalance it by withdrawing: loans from the
market.

The existence of a large leading fund in the hands of the political officers of the Government, uoaever, creates a complication which I can bee will make
for lif:iculty.

Even in conducting your own transactions, whether in cooperation

with the Reichebank or as at counterbalance to its policy, your plane may be made




honorable o. P. Gilbert

4

g.30.25

exceedingly difficult, if mot fruitless.
There are coubtlese so many elements in trio local eituation with which

40

1 au

not acquainted as to sake Specific euggeation from me likely inspplicaole.

In general, I feel that it the Dawes Plan is capable oZ' construction so that the

Reich is actually denied the power to lend surplus belances, and that this extends

also to the ruade of the postal, railway and insurance services, that could be
the natural and simple solution of the difficulty.

It would place the management

of all funde in the hands of the Reicheoank, to be nandled to harmony vita whatever
policy you 4ight be Lble to arrange with the Bans.

If the Niles Plan la not

capable of this construction, and the German Goverusent cannot to denied this right,
then I should think the united efforts of your own or.,.snisetion and of tete manage-

ment of the Reichebank, should be directed towards convincing the Gersten Government
that it was wiser, t:

L matter of policy, to e(vpt this program than to be respon-

sible for Lot: cont,uences of a disorgenized situation.

What troubles me particularly is the evidence that the Transfer Agent is
not in possession of sufficient information, as a matter of routine,

corm his

own judgment as to the extent of tae influence o: tce present policy upon the operation of the Lasso Plan.

Specifically, Es to the etetement published on September o, there are

objections when doubtless hive occurred to you.
In the first place, tat Reichsbank is today rationing credit, a measure

which is supplementary to a 91 bank rate, and one regarded as essential to the
maintenance or a sound situation and the prevention of en increase in the general
price level.

Tte policy of the Reichsbenk cannot be effective if the State exer-

cises control over co large a percentage of the available credit resources of the
Reichebank ea a est) to be the cope, any is willing to lead at rates below the
Reichsbank rtte



wItnaut r_gard to the general scheme of rationing which the




Fonorable E. P. Gilbert

9.0.25

un-eretending wee that the Chancellor had euggested that he Reicheben.k rate be

S

reduced to 7%; that Dr. Schacht had ateted thet he ice uusilling to reduce it;
that he had summoned the Directoriure in meeting, :submitted to them a

81..;.,

which was eubee,,uently published, outlining the policy of the Bank, and the
Directorium had une.nivouely approved it.

Fifth; The comeenta in your letter of Eeptember 13 to Governor 3oiman

indicate that the Reich ie ;:roceeding upon the theory that the coot or

can

be reduced by reducing the coat of credit and (ley implicetion) increeaing the
volume.

That ie ezr economic fallacy of the first order.

41:.eiently those

rteponrible for thie policy aye:look whet haze t:enepirec in C.ataan) toe tne causes

which seer to under4e the recent tendency touarde increased livine, coats. Inese,

I think, sty be briefly suraerIzed as _foliose:
(a)

111%e German people !lac been living for a long period

under the influence of a deprecie tine currency, which e roused wide-

spread distrust or ita purcheele, Aker, ied. led .,,eople to
practice the habit of converting 'Roney into property or erode

ineteritlf it case into their h.enca.
to eradicate.

:hoes naoite are difficult

(b)

Since the 1.41111111 Plan became ef:ective, the Peichabenk

(c)

This sas facilitated by the Pact thet traders froe oteer

reorienixed, aed. V..: old currency rezired, tee natural craving
of toe people to satisfy the desire for many things, includir.e.
luxurise, eeaerted itself et once and Ci.UtIllt1 a ptriod or extravarent spending.

ierts of t a acrid ruthee: into Germany ae 60011 as evidence of

currency stability became convincing, and undertook to eell good's

on credit, plecinc; et the co.-aeanu of 'Zile. German people many things

not :overly obtainable with which to satisfy a craving which had
long been uuaetiafied.
(d)

Leniere, lizewiss, talieted it 6tre to extend credits to

Germany, and foreign investors began to take Gersten loens, tttle
reeking le rge e.:),Irtte (mortly o: *hurt creeite) available for use
in buying goods abroad.







6

Honorable S. P. Gilbert

9.30.25

lovenente of ;code between nations are largely seasonal because they
so largely urine from the harveating aud marketing of crops eithin comparatively
1111

short periods of the year.

Thle results in t seasonal eepply, and conversely,

s seasonal shortage of exchange.

In former years, before the leer, banking pro-

cecure had served someihat to compensate for these seasonal movements of exchange
and moderate the effect upon exchange quotations.
in the spring, were in the habit o.

For inetence, American banks,

drawing finance bills for ninety days (often

with the privilege of one renewal) in anticipation of the sovement or the cotton
and other crops and the heavy detand for dol.are which would tries in the fell and
winter.
the

Because the American money market is now the cheapest end for long loans
available market, it has not been profitable, and arty not be for some years,

for American tanks to drew finance bills on Europe in eaticipation of Uis sovement.
Therefore the entire weight on the exchange for paying for cotton end other farm
produce shipped in the fall must needs be felt at the time of ellipment, without the

of;:.etting ifluence of otturing finance Dille drawn on Europe which would give riee
to en offsetting demand for European currencies.

In other words, one of the con-

sequences of the war will be to temporarily accentuate seasonal demends for exchange
as ;cell as seasonal surpluses of exchange.

Another development growing out of the war is the existence of very heavy
indebtedness between governments, calling for large payments which are lixely to have
a disturbing influence uron the exchange rates for which there is no compena-ting
influence, such Lb ordinarily exists in demands growing out of trade.

For instance,

under existing funding erraageeents, the service of the debts to the auo:.rican 6overn-

sent will now exceed $200,0M,000 per annum, and, if tke service of private loam& is
added to this, the total is ;robably $450,000,000 per annum, or more.
These dieterbing elements in the exchenge lo:.rket would beem to make it ee-

sential that the Agent General should have the power to accumulate forein exchange




http://fraser.stlouisfed.org/
9
Federal Reserve Bank of St. Louis

saenever merket

his from making
honorable o. P. Gilbert

9.30.25

. ....... .10

Honorable S. P. Gilbert

9.30.25

Practically I can Bee difilculties arising in connection with the dietribution of your account unle,.
410

your letter.

it can to :conducted alone the lined indicated in

And I will be greatly intereated in learning Sir Otto Neimeyerla

attitude on Laa whole subject.

There may, of course, be arguments with which I

am not acquainted.

le can discuss all of this much better when you Are in this country, and,

meantime, I will be turning over in y sind the general question of German balances
here and the mechanism of transfer.

It is not a setter on which I would like to

commit myself without opportunity for further discussion pith you.

There are a

variety of tnings which might be done, but possibly all tart I should sby now ie
to call your attention to the incretaing likelihood of an accumulation of German
balances abrof.d in the event of uncertainty developing as to the successful operation of t e Dawes, Plan.

The experience of the German people with a depreciating

currency and t disorganized foreign exchange market is 60 recent and the great ada .

vantage to be gained by having reserves in gold standard cou-triee suet be so

obvious to them, that this is a danger which should be confronted frankly end dealt
with long before the development arises, if it ever becomes likely.

It will not

be capable or' immediate ciscovery, and will arise from a v. ry 'ergs number of smell

accumulations undetectt_ble in the ordinary operation of the exchengee, and uncon-

trollable except by

et.suree compLrable in severity with those which were aCopted

aft,,r the Reictlebank Ito reorganized.

It is further complicated by the fact that

tere are a number of countries which are now practically on a gold basis, with
stable cur encies; that is, the United stAtes, areet Britain, Holland, Switzerland,

Sweden, Austria and Hungry, not to mention Bose smaller ones, with all of which
Germans have a large trade, ene: with all of which the opportunity to accumulate

Leltncee will to ever present Lae t_e temptation ocuElly strong.




Honorable b. P. Gilbert

9.30.25

I am not at 411 certain to what eicent it sould be eppropriate for ue to

go, ofticitlly, in usemblieg information of tne sort thet you will need, but this
also I will consider end discuss with Mr. Jay, who is absent just now for r week.
Diverting from this a minute;

I titre been retmer concerned et the

universal complaint which I tear on my return La to the way in which the negotiations
for placing German loans in this market are being handled.
pellet! Plan loan,

Except for the original

I do not think there is a single inetence of t loan placed here

by a German municipality, or even by private oorooratioes, whice has Got given rise
in one or e7_other phase to ease dissatisfaction.

The consequence of this was

naturally to hews almost al. of LAI loans but partial successes.

The only notable

successes teat I know of, were the DIXOS Plea loan, the loin just placed for the
reorganised Rentenbenk, through the City Company, and the loan of the City of Bremen,
pieced by the Guarenty Trust Company and Dillon, Read & Company.

The last loan (Bremen) as well as the Rentenneak loan, were both apiendid
successes in distribution.

But even these negotiations, ee you know, gave rise to

wee diesttiefection among the American negotiators.
loan, eefinite aseurenzee

Jr. the case of the Bremen

been given to tte re,reeentetive of tne Guaranty Trust

Company teat approval of the Advisory Committee of the Reich Treasury could be had
in a few hours.

This wee to be given at a meeting which w

eighteenth instant.

a,

held on Friday, the

But late Friday, or early Saturday morning, a cable wee re-

ceived to the effect that after a long meeting, tne committee had withheld its e,;grovel, but tr.et teey woule meet again the fol.owing Monday afternoon.

Arrengementa

has been concluded for en offering in %Ilene, Switzerland, end New York on Tueadty.
The syndicate had been organized; tce printing had been done; and the preliminary
publicity lied been issued.

The tank ra were able to extend the time one day, to

Nedneeday the k3rey penning .;11 appeal by me to Cr. Schacht to secure approval in time




12

.lom)reble

P. Gilbert

to prevent the whole trensaction beim, cencelled.

d.60.E5

This ievue, as you knoe,

 to reund tr image of .:':ort notes .tr taring, I believe, in December.
partly


';,hile

5.30.2o

honoreble L. P. Gilbert

111

mind which aight at,ko it impow6ibl

to recoaw3and cooperation.

Phis applies to

411 of tilc) Acti,:ket - k:ou:;liad upon in our (or.sapondance.

iuu will, of course, ant.,:zwiw.nd that I Lm writing
porsoually, t.nd 4uite unofficiL.11y.

is Llways wt. your cdsposal.

You IlLre aukad au for

f.L.E.A;




opinioa, and that

You Lill, I linos, uL,a it with the utmost discrution.

Linceisly yauzs,

Honorable L. P.rizar
33 Luienstretsse,
Berlin, Gcricny.

at




ffr




October 2, 1925.

vilbert:
Ity reply to your lott.rs of oeptesber
and 16 ie goin.: forward by pouch tau shoolo be colivt,rec.
to your office by hang.
I hope jay %Li bo on 'die lookout for it at the same Liao thst tails reaches jou, or
onortly ttf teraaros.
Wy bast to you, a.e aAla-ye,

aincerely yours,

Honorable S. Ptrter uilbert,
58 Luisenstraase,
Berlin, Germany.

October 5, 1925.

My de r Gilbert:
I as starting a feu incuiries about foreign
have hau experience in actual operation of accounts.
The enclosed is

hot

exchange men oho

intended to be a :inF..1 retort,

but

to

6.1 suggestione to your Nand, and, if there are eny names on thin net
which appeal to you, I will be very glad indeed to put the men through
the third degree and see whether I cannot fora a pretty definite
opinion myself

of their

capacity.

Ir. Schain sae one ol` ay mcn in the Et.nkers Trust ..:ompdny,
to get along ith.

and he is very able, but he is a little difficult
think he speaas
the

salaries of these men are not included in tLe

I could ascertain them,

in A. case o:
of z.chnid.

9.13d

I should say they run from

the lobest pain, to a axisu

Let re know
with beet

or, say, $20,000 in the case

*hat you hould like to have me do.

regards, as always

-rns/17
Honorable S. Parker ,filbert,
53 Luisenstrasse,
Berlin, Jenne:4y.

redort, but

$8,000 or $8,000

Sincerely yours,




I

Cieraun.

J. P. MORGAN & CO.
CABLE DEPARTMENT
6 pm

NEW YORK.

November 2, 1925.

COPY OF CABLE DESPATCHED TO MORGAN. HARJES & CO., PARIS

?lease convey the following message to 3. P. Gilbert:

63401.

Cable 83963, Cctober 31st, through J. 2. Rorpan b: Co.,

transmitted to Jtrong in Washington who sends following reply:
Various protests have been made to Deportment objecting to
letter and raising question US to its WiSdOM and propriety.
3ohacht in here co-operating in effort to dovelop a new plan
by which discrimination in German 3tate and Municipal borrowing
will be effected in Germany under supervision of Beratunga-Stelle.
The plan seems satisfactory in Washington 90 far and we are
awaiting preparation1k sere - procedure in detziil.

Will write

immediately on returning to New York.




STRONG.




hoyeabor 7, 1923

De" ..r

:Albert:
So fkr I were etc, no ;Anal ai

in regiA-Gt to Lilo policy or tab 'titbit:1k in setae,

its

Lt.. :,cha..Cht
Vor

in the taLrket.
n14389 L -11Cd

h

aor::

,.*3

i
.ii A -1
4.111. I Zaire 1'14 Ibi
eat. tn,%a I hAve
o.i tai a

that

cievoloped
,:nci I
oy3e1".
.ge regE.rci
hope to come more nrtrly to &A usec.errtanding or Ett.t.
to
I in, y
::ound koti-.tot for

3ut I as expeltiag to have soother tek ith aim,

co aotttAinz of tttiL 1;11 37 ret.:ro to Bev York, after Arrther
2itt. Vr. 10C-rr.h.
-with hit
Eft

Honor.t1

St Lui




:iltcrt,

a,

re,

S
PeR6ONAL AND PRIVATE

November 7, 1925.

My dear Gilbert:

Your letter of October 18 reached me some dye ego, but could not
be !nceerec sooner owing to my continued ebeence in Leshineton.
Of couree
you underetend that me reply is purely personal ens unofficitl, es i tam unable
in any why to speak for tiny Depertment of our Government.

Thie whole matter of lich you
a vital bearing upon the return to the gold
peogreesing so actively in Europe, and upon
it is establiehed, test I feel judtified in

have written me, hetever, tire :web
etenderd, plans for which are now
the meintenence of eold psymeet once
writing, you privately in detail.

You know test I taiga shale felt that any attempt by our government
to exercice a supervision or control over loens mtde by itti citizenry abroad in
time of peace is without *arrant of law sad of doubtful wisdom except in those
cases where poeeibly some crew.
netiont/ interect ie to he served which hes to do
with the afiaire oi' our government.
This may be e proper exception in the seed
of 1oare to governments, or even to their citizenc, where thos governments owe
money to our government, which debts thee liege neither recognized nor merle e.
serious attempt to refund.
There may he other exceptions.
Let me refresh your
memory as to the development of this extra -legal procecure from its inception.
.

b.erly in President Herding's edministretion, I think in 1921, e
member of the Cabinet recommended thet our benkere he asked to refrain from handling

ifikillets of bonds of foreign countries, or of tneir eetablishmente, unless the borrower entered into an obligation, to be stated in the proeeectue, that the proceeds
of the loan would et spent in tee United Stetee.
There We

to this, (principally that it would effect e definite restriction of our foreign
trace inateed or promoting its expension) that the project Was abandoned.
The proposal was thereupon edvenced, that even though no attempt at
restraint as to be exercieed, the bankers be flaked to report those loans before
concluding conerectd tor eneir purchase.
This tne bankers rather generally agreed
to do.
And it is my recollection teet in some cesea - probably very few - objection
wee made to 'wine shish were understood by our government to be desired for wholly
unproductive purposes, posuibly for military purposes.
but in generel, while our bankers have been reporting these loans,
objection to their being placed wee not eenerelly made until, eithin the plat year,
it bee been the policy of the Department of State to eithhold eseent to lomas to
those governments, or their' political eutlivieione, which have not funded their debts
to our government.
This wee notably the nolicy in the c7..se or Belgium riri France.
Chile the express wishes of the Department of State have not invariably been followed
be our bankers, they have, on the whole, been very generally respected.




i2

Honorable L. Perker Gilbert

11.7.25

This was the actuation until very recent months.
Due pertly to repreeentetione mede by our repreeentetiveu abroad, and pertly to the existence of some
doubt in the minde of some officials aa to the capacity of Germany to ef: ect the
necessary trensfers in order to meet the service of loene to Gerson States and
Munieipelitiee, which wore assumed in some eases to be for earpoees that eere not
wholly neceeeery, aeent has been given in the form enclosed.
There wee, indeed,
considerable increase in these offerinee, no one of the loene being vary large, but
the ecgregete ehosing a tendency to increase.

ea

Without any preliminary warning, 60 far as I am aware, either to the
German Government, or to you, or to the American bankers, end certainly without cny
notice to me, a different form of letter wee tCopted, ut u dote of vhice I ar uncertain,
but probably within the last teo or three months, a portion of which wee enclosed in
your letter of October le.
In come cesee t different f07:71 of letter hes been used,
or eeice I eneloee a copy Narked "A") .
While no F4

York banker bectreht to my ettention /,ree letter in the form

enclosed in your letter, within the last few weeks I heve received protects :rom
number of lies York etneers ac thu renew t of receivin g letters from tea Department of
State as per the copy which I enclose.
Ad Dr. Schacht rno here et
time, we e4 once eook the utter up with
Secretary Mellon, en.e later with hecretary Kellogg, ene Dr. Schacht diecueeed the
mutter ith the German Ambassa dor.
The bt.ete Department seeped to te convinced
tuet eome reetreint must be exercised ueen the plreine of these leers.
It wt.e
cdreitted by all parties that no department of our government eat capable or exercising
diecriminaeion between those eich were eesirnble and those which `ere undesirable.
Dr. Schecht end I then joined in a recoemeedetion to the Treasury repeitsent, which
we also explained to eel State Depertment, that tha eituttion could be met if our
Et!te nepertment enould require from the American banker submitting the loan emposal,
the concurrent euteission of eperovel of tat loan, probably made jointly by the
eieretunge-Stells and by tha Heichebenk.
This er000eel the Geneen embaesedor conveyed to his government, and, in reply, received a cable, translation of which is
enclosed eerewith (terked "V).
Upon receipt of this cable, ee expleined the eiturtioe to both the Stete
and; prepared a form of letter to be sent to
emericte benkere which we thought, might meet the situation.
e copy of this is elso
enclosed Oerked "C").
Department and the Tree/Jury Dept rtment,,

It roar develops that the Department of state reels that it has no request
from the German Gcvernmcnt for e procedure long three lines.
And fUrthermore that
the letter in the fern suodestedappeare to subordinate the judgment or decision of
our government to the judgment or decision of e foreign government, end thet some
Just et this point the representatives
other form of coseunication will be recuired.
of k foreign government 122v5.., arrived in thie country to neetetiete the settlement of

their debt, end the beede of ell three departments who have been concerned with this
matter htve been too closely engaged to give further coneie:eretion to our proposal.

This is simply an historical etetement of ehnt he taken place. Now permit
ne to expreus a fez pereonel views.
There is considerable denser at the moment that
one of these letters of the Department of etete, especially one of the type which I







#5

Foeortible S. Parker Gilbert

11.7.25

i4

41Ir

Honorable e. Parker Gilbert

11.7.e5

reliance mubt bo had upon the Gamble Government Der thi, discrimination;
that no
sueh diecrimineeeon can bo undertekon by you without your entering into morel
obligation's welch ere tantamount to eatabliehing priorities;
and, finally, twat
where borruwing /5 undertaken by Germen gunicipa.litiee end Statee, the determination
of *nether the loans aro justified or not muet depend not only upon an ekemindtion
or the direct perpose of the loon, but elso upon ehether the undertekine could nut
forefiga loan unneeeseary.
be necomplieeed out ot the revenues, thus maeing
The matter reachee U8 perticulerly beceuse of the expectation which is
eo generally e:lt Viet hhen ciroumetencee permit, the Federel Reserve Bank of New York
It deems
will do Ito pert in eiVeavoring to establish and meintain the gold etenderd.

to me that there nre two pressing queetione ee TO Goretny eeich euet be deiitely
decided before ee ern determiee that our attitude will be.
The first ae fully
itu
discussed in my former letter to you es to the policy of the Reich .n
funde eirectly in the money merket.
Lnd the other is whether Germeny ehell be permitte
to Oorros in this country for proper purpoeee, but reetreined by the Germa n reoverne
wont from borrowiee for enneceasery pureoece, ac thee ,Len the Trenefee question
bribes, if it does, it can be demonetrated thet the normal economic development of
Germeny ens, the eapecity to of ect t,reelers heut not been imrired by Deplovieent
borrowing, but have ratter teen improved by ineuring thrt the borrowings hove been
for procuctive sari useful puloodee.

There tee epieodee lteve es in e ertet state of uncereinty es to *eat

end, at the time of dictating tie letter
the attitude of our bank 'should be.
(on the trtin becA from uieehirOon) me oen feellee, ie that these ie little ale that
V6 can render to tee Reichebenk until both meet ere ere eetieteotorily eettled.

It teul oy very helpful in tied eo i:e4e you here, eo teat we coule discues tnese mattere, bet I Veer that your vieit hill be eeleyed until efer
e!tter res been eettled one wey or the other.

Moverber 16, 192E.

Since eictetine the hove, I heee received your letter of Oetober 29, end
reed it with much interest.
I don't want you to feel that I eo unreeeonenly rriticel of the attitude
of the Depertment in Prehineton. They certainly are inepired by motivee thich
csneot be queetioned, thet is, Lome eenee of ,luty tL t they should protect .=..eerican
But I fees every type of interference of :.hie sort, and after ell, the
investore.
judgment of the bankers themeelves ie the judgment which must be relied upon in the
latest analysis.

After dictetinc the aoove also, 1 hove rued your recent lettere to
'11cCe=eillh, end love hal eeny telke ith Dr. Schacht on the subject of tee eenteement
Noteithstanding whet eppetr to he contredictiote in the
of the funds of the Reich.
reports which have retched you, I shill retain the opericeened eater. I ekpreesed to
you, that he id; endeeroring by -,orioue mee:as to put thia metter le eetieftetore shrpe.
He must not end cannot
Clearly, you see that he ie in t. veey difficult. poeition.
afford to be accused of conspirine to defect the policy of hie on overnment. The



#5

Honorable e. Parker Gilbert

11.18.25

delicacy of the situation is such that he may at times have found areat difficulty
in expreeding his views to those with whom he needs to exerciee caution, and this
is especially true, no doubt, eh re difficulties a' language and idiom
lanye open
the door to possibilities of misunderstanding.
Dr. echecht desires to develop end strengthen relations between his institution and ours, and we are prepared to consider Lie propoeele, 4C. I hive explFdried to him verbally and set out ins private memorandum, which I heve handed
to him; but always subject to eome eatiefeceoly solution being found of the menagement of the funds of the Reich end the control of German borrowings in this country.
He reseed no objection to the position I have taken, and in fact telle me frankly
that it will strengthen his hend at home.
His attitude in all of our discussions his beenparticulerly correct,
thoughtful and conaiderate as to the sttitude of his own Government, but very definite
as to his own views that there cannot be three Reichsbunks in Germany.
I think he
feels that be Gen get alon,t, with you and cork out satisfactory urranogowente ee to
policy; but the introduction of this third element of uncertainty is confusing and
dangerous, and he hopes to reeve it corrected.
3ia
as most enthusiastic in le.e satisfaction when wore came that arrangements for the transfer of a large portion of the
tunes of tee railways has teen or were &bout to be concluded.

New I have written you very frankly, and as you &ill unteretend, most
confidentially arid privately, because I feel almost es much interested in the success
of what is being undertaken by year orgenizetion as I do in the work of this bank.
In order that it may reach you securely, I am taking the liberty of forwarding it
to London and leaving it to my friends in the Benk of dngland to have tt cone-eyed
to you crivetely.
Please write me freely and I eht-11 hope at ell times to answer quite as
freely myself.
15m looking forwnrd most ke:nly to your visit.
With cordial ager-de, believe ae,
;since rely yours,

Honorable S. Parker Gilbert,
33 Luieenetreeee,
Berlin, Germany.
Lace.
116.M6B




December 24, 1925.
Deer Mr. Gilbert:
Enclosed is F letter just received from Shepard Morgan, in reply to

one kthich I recently wrote him, of which a copy is enclosed also.
I examined the envelope cerefully r. her:

it, arrived, any' found that

the gum had adhered so lightly, that it would be very easy to break open the
envelope and examine the contents if tl'e wax setle had become broken in the usual
rough handling of mail.

In fact, I think the whole envelope might have broken

open just in the course of handling.

On the otc,r hand, there will blweyb be suspicion when a letter arrives in that condition, and when the contents are of euch P character, that someone has tampered with it.

I am sending Morgan's letter becauee of his suggestion

that you may aieh to mention it in Washin,iton.

5o long as suspicion exists, we are liable to embarrassment, and I

hope the boys in your Paris and Berlin offices ctn be persuaded to give particular
attention to &moiling these envelopes and to the character of the envelopes used.

I would much appreciate your tiring me just when you plan to be in
Waehington, after you have finally decided, end I will certainly endeavor to be there
at the SEIMO time.

Governor Norman will go too, but

has not heard from ziecretary

Mellon about visiting him tnd, of course, he would not expect to go there unless
he did hely; so we may both go to an hotel or possibly both go to Winston's.
will await some word from you before making any plans.
This is also to wish you and Mrs. Gilbert a very Merry Christmas.

Yarker Gilbert,
Lonorable

Cherokee
http://fraser.stlouisfed.org/ Perk. Louiaville. Ky.
Federal Reserve Bank of St. Louis

.sincerely yours,

I

-it

Locenber 28,

SPECIAL DELIVER :

192.5

My dear Mr. :Albert:

There follows the text of an open cablegram
received for you tocl'4, which, ho.,ever, it

b e em

a wiser to

transmit in this form than by telegraph:

"S. Parker CailLerL, Federal Reserve New Y)rk.
Sterrett asks me to transmit following, cone

Schacht - ZACti
Bruin
Leverve
McFayaean
Strong
Fraser
Horrid
Brack
Morgan
Sterrett
Reich
Fin'-ace
Mini stry

Luther
Streseman
Karlowa

- Z ice

- Zeta°

-Lace
- Zada
- Zade
-

Zadi

-

Z,tiao

- lam
- Zabel

- Zebe
- Zabi
- Labe.
- Z?,bu

Fraser."

Paris

28

Very truly yours,

$ecretr fi to the uovernor.
ale

c.

Parktr Gilbert,

T. Ross Toda,

f

p

Cherokee P irk,

Ky.
lie,


5:19 P

January 4, 1:6.

My dear Gilbert:
isne:loseci is

ft

copy of

1e1 ter jtsst received

is run

:;hapard :gorge% which reir.tee to thoa letters of your whion
Cb6110 pith the ff0$ftlr, broken.

Very truly yours,

.lonorable S. 1.)P,rker GilbJrt,
c/o Portortble Garrard B. ineton,

Tree bury Dope rtaiont,
Weehington, D. C.
&no.

bo.L6




April 20, 1926.

My dear Gilbert:

I should have answered your: of ?ebrIzary 26th some time co,
E
but greatA)ressure of work has prevented my doing so.

Now I am sailing

oz .1.11e nkajestic" Friday, expect to be in London for about ten days, and

the middle of May to go to Rome.
to

After a holiday In Italy, I am plFaIn4mg

work around towards Berlin, reaching there, I suppose, some time in

:uns - probably late in June.

that we can meet somewhere else.

I hope you will be there, or if not there
If there is c.ny chance c: your teiL6 in

London before say the 10th of May, we could have a visit there.

I have just received your cable of the 20th through the Department
of state, and hope to get a renly off, so far ns one is possible, before I
sail.

In the meantime, I will talk over these matters fully with Mr. Morgan,

so ?lease cousidar t'his merely an interim acknowledgment.
Sincerely yours,

Honorable S. Parker Gilbert,
Agent General for Reparation l'aymente,
33, Luisenstr.-iza,

Berlin, Germany.
plc."




Hotel du Cap d'Antibes,
Antibes, June 21, 1926.

Deer Mr. Gilbert:

Thank you for yours of the 19th with the
copy of the Interim Report,

which I shall read with much interost.
Norman has joined mo at this delightful place,
and we were only
saying last night, how fine it would be if
you could join us here.

We shall

be hero about a month, so if your thoughts
lean in this direction, let me
know.

Sincerely yours,

Hon. S. Parker Gilbert,
Agent General for Reparation Payments,
18, Rue dc Ttlsitt,
PARIS.

RC:M




Hotel du Cap d'Antibes,
Antibes, July 11, 1926.

1111

Uy deer Gilbert:

Yours of July 3rd ancicsine a copy of the report of the Cerman Railway
Compeal has just come, :%nd I shall read it with a great deal of interest, as I

did your own report, for which you .1'30nre ccngratulations of the first ordr.

Today the Governor and I Pre really in mourninz, .ze :Ire co traaendously
disappointed end troubled by the news you :end us about Grandma.
arrive this afternoon and give us :Acre detail.
ious illncrs and an o.)eratior.

ing about her down here .pith much

Logic) will

I do horse that :la escapes ser-

7-13 her the.t c cou.le of old fello-ys a! think-

x'ety

affection.

If them is :nything

in the world th-t oither of us can ('(), you hpve only to aLA for It.

I am awaitine word from rev Tork as to 7r.
on the 14th, and I rether imagine w:111 go directly to Paris.

)rogra.

He cans

It he does, I am

r.-.7.-.nginE to so to Pnris to meet him, which will be Lbout the 20th or Ust, and if

Grandma's illness ?seeps you there, then I shall only hope that we can talk over

some of the matters of mutual interest with him.

?lease give Grandma my love, and my best to you F,.0 always.
Sincerely yours,

Ron. S. Parker Gilbert,
18, Rue de Tilsitt,




Princess Hotel,
Paris, August 26, 1926.

Dear Mr. Gilbert:

Encloped are a couple of clippings that may interest you, if you have
not seen them.

They may also be of interest to Mr. Mellon.

It seems that

James Bruce is the brother of Ailsa's husband, and he and Ben are associated in
the same office.

I am telegraphing you today about Mr. Mellon's plans for the return,
as either Mr. Warren or Mr. Moore are ready to go to Evian to accompany him back.
Best regards to you and the rest of the party.
Sincerely yours,

Hon. S. Parker Gilbert,
c/o Royal Hotel,
EVIAN-LES-BAINS.

BS:12




NEW YORK 1287

47/46

10

65 ip

S. PARE= GILBERT
BERLIN

AGENTREP
33

STRICTLY CONFIDENTIAL

REGRET DELAY IN REPLY OCCASIONED BY

AWAITING LETTER FRO ROME WHICH JUST ARRIVED

STOP

I CANNOT ADE-

POSSIBLE SERVICE
QUATELY EXPRESS MY APPRECIATION OF THE HIGH HONOUR OF
WITH YOU AND TEE STRONG APPEAL IT MAFF.S STOP

HAVE CAREFULLY CONSIDERED

BE PREPARED TO RELAIN
MATTER AND FEEL SURE IF I WERE TO ACCEPT I SHOULD
APPEARS TO ME
ABROAD SEVERAL YEARS WHICH UNDER EXISTING CIRCUMSTANCES
MOST INADVISABLE
TION STOP

STOP

THEREFORE MUST REGRETFULLY DECLINE YOUR INVITA-

PLEASE ACCEPT MY BEST THANKS AND GOOD ,DISHES

VEYED THIS INFORMATION TO MCGARRAH.




CASE

STOP

HAVE CON-

r

Paris, September 2, 1926.

(Sent through Mr. Gilbert's office in Paris)

Private

Agentrep
Berlin

Have reserved passage for Mauretania sailing September 18th and
greatly regret probably unable visit Berlin at all unless unexpected developments
detain me longer (stop)

Case just returned from months vacation (stop)

My

letter was of such character that I hesitate to cable for any reply which he

might interpret as indicating that I was suggesting his changing his decision
(stop)

Think it most unlikely he will do so anyway.




- Strong

.

STOP

him before sailing

sails for Europe
'31,5 no reason why you should not approach Jay who
STOP

September eleventh

you know my other suggestions wero Stewart

Miles

and Close

Saturday next week
Last named returns New York permnnently Wednesday or

STOP

independent moans
He is only one having advantage of adequate

STOP

Regards

.

- Strong .

S







Princess Hotel,
Paris, September 3, 192G.
PERSONAL
My dear Gilbert:

I are afraid you will think

possibly not very clear, but I had so

through your Paris office in regard t
tion.

We have fully discussed Mr.
Stowart adequatoly in our talks, and
notion of their qualifications.

Jay

month, but T have no knowledge of his
I will drop you a lino.

Of course y

what a terrible loss it would bo for u

certain that the suggestion will temp

in the work, but will have nc attract

ceiving more than you could afford to

plans, he has always emphasized his de

really make some money for his family
is even a possibility.
Az to Basil Miles, I am not

a splendid education in America, I thi

he subsequently attended Oxford and, I

for a while an instructor at Groton, t
held some posts - I think the longest

sistares Postmaster-General in the Rep

negotiated one of the early Postal Uni

Mr. Gilbert.

2.

September 3, 1926.

Root's mission to Russia whon Kereneky was in power.

Then he acted as Secre-

tary for the International Disarmament Conference in Tashington, and Secretary
Hughes told me that he did a magnificent job.

For a period he was in the

Chamber of Commerce of the United States in Tashington, and then accepted this
position over here which he now occupies.
He has married recently and has no children end very little money of
his awn.

He speaks German and French fluently.

I know him very well indeed

and know that he is absolutely dependable and a fellow with a great deal of ability, but he is, in my opinion, a fish out of water in the present organization
and doing the type of work which he does.
lamellar with European affairs.

Of course, it has made him pretty

He has got a fairly good knowledge of economics

and a great fund of all-around information.

not sure how good he is at office work and such matters as accounting.
an indefatigable worker.

I am

He writes very well indeed.

Ho is

On the 'whole, I should say that his principal defects

for what you have in mind would be lac:: of a thoroujh office training and lack of

technical knowledge of banking, finance and exchange.
knowledge is good, he has had no practical experience.

Mile his theoretical
lie is at least a possi-

bility, and it might well be that in an organization such an yours, hie obviously
excellent qualifications in some respects would make up for his lack of experience
I am very fond of him, believe in him and believe in his capacity to

in others.

develop into an organization successfully.
As to Close, I have known him for nearly 25 years.

He was a youngster

in the Bankers Trust Company when I first wont there, izinediately after it was

organized, and has grown up with the company and held very responsible ?oaitione
there.

I would class him as a thoroughly well qualified, experienced banker,

with a good knowledge of domestic and international finance.



lie speaks no

Septaaber 3, 1926.

Mr. Gilbert.

3.

German and not very much French, although I imagine he

as acquired quite a

little during his stays in Paris.

Frank Close has certain qualities of darewdness and good business
judgment which you would find of great value.

Ae has an independent fortune

which he has made himself and is quite independent of salary.

He has one

married daughter and a boy about twelve, and he has a very chartaing wife.

Ho

has had the responsible management of the Paris office for a year, and also for
two earlier periods of a year each.

I should imagine that he may have reached

a point where, fooling that he VW independent of salary and being much interested in public work, the position might have some appeal for him.

The only

way to find out is of course to ask, and the way to get up-to-date anowledge of
his capacity would

of the Bankers Trust Company.

I have

been out of contact with him now for a dozen years and cannot speak from personal
contact.

Please let me know if there is anything further that I can do.
I am leaving Tuesday noon for London, where I will AdAgi, with Forman

at Thorpe Lodge, and vhere you can always reach me through the Ban% of England.
I shall sail home on the *Mauretania" on September 18th, unless in the meantime
something very unexpected and important delays my return.
'Sy best to grandma, and the same to your goodeelf.
Sincerely yours,

Hon. S. Parker Gilbert,
cjo Royal Hotel,
EPIAN-LES-BAINS.




ti
Princess Hotel,
Paris, September 6, 1926.

My dear Gilbert:

Many thanks for your note of the 4th and for the copy of the
press statement summarizing the Agreement about supplemental contributions.
You are to be congratulated!

It takes another "bone" out of the arena and

gives the needy creditors more money, which is all to the good.

Sincerely yours,

Hon. S. Parker Gilbert,
0/0 Royal Hotel,
EVIAN-LES-RAINS.

135:11




Mr.a IAA Mrs.eIumene Itorat Todd

retniest Hie honouroPuesur presenee

at the marriage oPtheirdung liter
Louise
to

Mr.Segmour Parkerta [her*
onWed neselesg. the eighth orOcloher
at Plourco'eleiftk in the a Pte.rmion

at theWarren Memorial Church




I AneisTi I le.Kerittiekg

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/s/1

;-ii;;i.
THE UNDERSECRETARY OF THE TREASURY

WIN1 28 1922

a s.

WASHINGTON

,

Oiusud (.:upd of. the
7t

4 "

aaorvao
'-'inence Corporation,

of the ...ssueiated ..dvertising Clubs of the :orld, on the subject
of

"Farm Financinz. and Business Prosperity".

I had already read

this speech, but, needless to say, neither the Treesury nor the
Pe dered Reserve Board wis consulted before it was delivered.
Inci dem tally I

tion

ar canine, y*r letter to the

Secretary' s atten-

and giving him a memorandum of my ow-.1 views, a copy of which

is e-losed for your con.fide..tial informtion.

The sutzestions

which Lr. -.Jeyer makes as to possible amendments to the Federal

Reserve .Lot, while going somehat further than anything previously
suggested by responsible officials, are, nevertheless, not entirely
unlike the sk..,:est19116 411 11 Goverror Harding made last Fall,
as

you will recall, to Senator Capper and Congressman Strong.

These

suggestions found their way into Bills (S. 2640 and H. P. 6906)
introduoed respectively by Senator

:Jr
al.,c

u d Congreasn:an Strong,

copies of Which I am enclosing for your ready reference.
I cannot luite make out -hat is happening to the various Bills

to provide for agriculturarcredits, but apparently the House of
Reiresentatives is satisfied to take a long recess next week without




having taken any action on any of these Bills, and I gather
from this that the pressure fUr farther lecisl.:.tion is disuppearin.=7.

matter of tact, I ta:e.e it that both the Treasury

and the Federal Reserve ?ourd authorities have felt all along
that as the readjustment prooeeded it would become evident that
the necessary ere -fits for agriculture could, for the most pert,

be provided through existing banking geollities, without additional math inert'.

I believe it would be heliCal to have addi_

7uchinery along the lines of the Bill proposed by the
Joint Co

.fission of Lgricult-arai inquiry, in order to meet such

emergencies se migy arise in lb* flame, tint apparently there is

very little Interest in a Bill of this character.

Very truly your

S. r. GI.L1LT, Jr.,
Under Secretary.
Benjarin Strong,
Governor, Federal Reserve Bank,
New York, N. Y.
3 enclosures.




ACkV^
t cv I
THE UNDERSECRETARY OF THE TREASURVU/
WASHING-7C%

0 192?

.:7*1

July o, 1922.

idy dear Governor:

In view of our previous correspandej a on the subject

of agricultural credits, I me enclosing

your information a

copy of the Secretary's letter cf

to the Governor

of the Federal Reserve Board with respect to the Bill introduced
by Ir. NcFadden which was suggested by the .ar Finance Corporation.
I am enclosing also a copy of the report (B. Y. Io. 1174) from the

Joint Congressional Committee on Short-tiee Bure1 Credits, which
males rsoomnendations Which ma zi prove to be dangerous naliss action

is taken in good season to provIde

on sound lines for

such further agricultural credit meabinery as stir be neoessary.

I

think this report emphasizes the neoessity of getting together on
some workable measure, and I hope that, with tbs Treasury willing
to tale the initiative, some real progress nig be made before long
on legislation to provide the necessary facilities.
Very truly yours,

Benjamin ..3trong, Esq.,

Governor, Federal Reserve Bank,
New York, E. Y.
2 enclosures.




S. P. GILBERT, Jr.,
Under Secretary.

zo

14.;

e)

Lu

I;
c
(JD
07.-

1J

13

16 2etrsarY)1025. :;

L.::ortopum far the agent leneral.

faccordin6 to the provisiono of the -xpertel?lan,
are the payments colleated in .rent "rat twin
under
the British leaovery act subject to the oontrol
of the Transfer Oemmittes ?"
B.

"Joearding to the provisions of the 'xpertm°
Plan,

may the aunt general, upon the 401710d and
oonsont
of the .7ransfor lacimittee, open and maintain
acoounty

in foreign aurrenoles in banking
institutions ouisidc
lermany ?"

You desire a response to the foro6oing
questiOns
based upon a juridical examination
and interpretation of the
;:gport0 Plan and suah oVer docuetu
48 may be pertinent.
I
have made suah an examination, and
i have Ve honour to respond
in the affirmative (for reasone hereinafter set forth)
to each
of the questions put.

.re the proomedu of the British 'Zeoovery
_AL subject
to the control of the ?ranee? lom.ittem
?

The affirmative answer to this question
is nacessitat
ed net merely by the specific, °leer,
terms of the 'xpertst ?len
describing the powers Ind duties of
the Transfer aawaittee and




The

-ant

16 deb r. 1925.
?age 2.

,neral.

Oloreferring to tho British -:eoovery act, bat also by a coneider-

ation of the fun3amental purpose of the ?len as

whole and the

Transfer Comatteele relation to the realiaation of that purpost,
The *ports were invited by the "Zoparation lom-ission

to oonsider the meane of balancing Germany's budget and the
moans to be taken to stabilise ten cerrency of lormany",

In eo

inviting the -Xparts to prone's:tato investiemtions :ins t to make

r000manndations the 7oparation lommilasion was not exelusively

motivated by pure philanthropy;

it W49 acting within thn scope

of its powers under 2Lrt 7111 of the Treaty of Vernailles with
4 view to securing en behalf o' ito prinoipals u reeamption
of the flow of reparations within realisable *anneal° limits

and an uninterrupted continuity of that flow if renamed,
The -xperte replied that a sine aaa non of such maration
payments was attermattently stabilised currency", that "It is

easier to estimate the Larden that Germany's noonowio and fiscal

resoaroes can bear than the auoant of her wealth that c4A be
safely transferred abroad*, that althoash the new tuck of Torten,
the International Loan and the balanoing of the bedget would

tw.porarily stabilise thn ourrenay no permanent stabilisation
could be aosured (and eonsequently no 3;ormonent reparation

receipts) without *some kind of co-ordinated policy with
continuous expert administration in r'14;ard to the exehange
whieh lies at the root of the,Raparatioe p:oblem*,

Renee the Xnerte distin,qiehed with clarity between the
problem of eollection inside Germany and the problem of Getting
these eollootione over the exchange either in the farm of
aommodities or in caah.

In order to determine from time to

time the amoaAt of ;mutiny's wealth that could be safely trans-,

forred abroad the xpertn, instead, they said, of hamardint; a
teat's, recomatended the

establishment of a new body which, so

far AS -reparation payments were concerned, would "safeguard

lernan etchange


and curreney stability ", and would control

Rage S.

entternal payments in accordance with *experienol", *realities%
0011,11ed the 0exaat eeonomio position ao it develops in fact* - i.e.

the Tranefer Comulittee.

*.o estirette the aL,ount weigh wa

think lormany can pay in gold markt, by oonsideration of her

budget possibilities;

bat NI propose eia-?egaarde against each

transfern of these mark payments into foreign exohange es would
destroy stebilisation lnd thereby endan6er future reperation*.

The 71an emphasised the fact that the peyments oontemdlated
thermineAer and to be controlled ware' all-inelusive and
re l.:resented the totality of Gereleinyor3 oblisations to the

Allied and Afteociated Thwers because of all ..i'rea4 eosta.

In other words, the fundamental prol:osal of tho 71xports.

tae to maintain currency etabil%ty and thus seoare some
reparations was the future regulation of ail external payments
on locoent of reparation by the 0oontinuous expert administrat-

ion" of the ?rmefor ComzitAs,
?in snoh importent extarnul payment as the princoede or the

3ritish leoovery ct oan be deemed to have been mAt',.ed from
the operation of this fundamental Ixoponul of thci erperts9
echnme anlens tnere be a clear and unmistakable proeiaion in

the terse of the flan to toe effeat that this payeAent received
on neconnt of rep4rations is Tsui goner's ana is to be !xeopted
from the loo-ordinate d policy with regard to the exchanse*
whioh the .Irperts connidered to- lie "at tne reot of the

lepuration problem*,

*lemembering that tL

Xpertst flan was

aomeeived and drafted on economic and not on pc:HU...gal grounds,
and remembering that other .alico had the right to enact
?eoovory Acta, one would be surl:rised to find erevisions

establishing an axception no nebversive of the Lonaral

p loci- -

pie and no capable of extension to to render the whole oontrel
of transfer s nugatory.

he text, however, coutains no suck

surprise, but on the oontrary provides, with conaIsteney, that
411 transfers to the -11ies are to be oo-rrdinated and controlled




15 Peby, 1;,"15

The ,Tent General
.11110M11.111111.11111

:=ae 4

us will apccar from the
body, the Tr4nefer 3ommittee,
bite
the dedeetione there=fro..:.
onunorted references ved
following

regulate the execution of
"This Coewittee (Tranttfr) rill
end who r4exataLt_gA2y
it

(1)

she prvram for etcliverica
In eueh r rwner

to prevent difficulties
fart I)

oxthunFa". (3eetion
{rising with the foreign

regulate the program for deliveries
The Transfer Committee will
(2)
(Seotion XI.
exchange lifficultieo.
im kind in order to avoid
'lart /);

(

)

(rticle rir Annex VI).

control tie trnmsfvr of cuoxh.
The Tralafer °committee will

(Seetion 7111, Pert I).
i,et are cer;a1111
The prooeetle of the Recovery
(4)
delivery in kind. In both uvente
sash trt,nefer or c

c

tliey

CoT'xaittee.
ender the aortrol of th-

(5)

"The Corr

ehull have power, _iv! it

be Ito drty,

for deliveries in kind
bank bulanees for payments
to apply Imoh
110cc"....17

oat in

cord4'.1141c with

!tataMEIALMASALI42...2102tEiition
the Repe.riom Conainion
established periodioally by
the program
Oomilttee ac., to tIze cbaruoter
consultation with the Transfer
after
the foreEoinE powers to
'Rich deliveries;
and emount of
in the judgmel:t of the
to the extent to ;hioh
be exeroised
penit". (Article IV,
foreign exchange zdK,rket will
Committee the
Annex V/).
is
part of t..o frA,olno lenguu7e
If it be suggeeLed that
(6)
con2traction the:t
succeptible of the narrov teehnIca
possibly
only to "suoh
periodically established relate
the programs
paymentt under the Recovery
deliveries", ae dietinixished from
eliminated by the provisions
as-umption is at once
hot, that
that Recovery ;.ct
of the Repcirt which state
in other parte




$ /*by. 11:5

The Agent General

-ftge 5

aveimilatee to
paxwenti: wherever -po:Lon of ,re

.eliveries in

teohnieel eueetion
Loreoverp eaite irreureotive of any
with regard
ooveorning the fmnetion of tie S.ronefer elommittee
ender the Recovery kit,
to neetsblishinz profrettle" for -eurents
huve
tbot after pro `e
the laneuage suet quote adeaele it °leer
Reeovery ;iot are to be made
been atopted the payments under the
to uhiih the foreign emehenge

kirk.

by the Comittee an4 to the extent
murket will in its judgment permit.
(7)

1,$(50+41on XIII.

Row the keymente are to be Reeeived.

deposited will be
e une and withirawal of the liOneye ee
al the -geet for 4epereLien
oantrollet by u tee,r.ittee eoneletiug
and Cive persons skilled in mutterereleting

leyments

to foreign exehunge Lne finameon.

The fume ee depesiee ere all

(*eotion Xii) for al 2renty
the funds payeble under the .clun
nel
the ur-e
oharges and harem tha Trunecer tex-ausiteee eentrole
the .11ied
withdrawal of eal the ZUM4i4 ehieh ean bo em..nsforred to

ltd Aseoeisted
(5)

owere.

lenguage :mat quoted
If it be et;, ooted thut the

th-t the T.;:.ansfer
aueeeptible of tha nurmw toehnieel conetruction
"kw topquitAW in
Oonmittee Gan oontrol sfalzs21LIEajwalla
over funde colleoted in great

the 1:eidhabank, end 111,41 no oentrol

conotruation
Bruin, the &newer le not merely that *o technical u

merk deposits impractical
would render wren u ::on carol of the gold
to tho eume oolleeted in
bseause of their inextriceele r:31z_tion
with
merely th.:,t :match a dociaien is incempa'Able
Tor undo ::.md not

Iflen, but the newer is
the 'hole funeental groundwork of t'nt
Tiven in the broad, unqualified
mere categorically and directly
the zentence empowering the
sent.mce whioh imtcediately folimve
Rio acre and withdxgAial of 411 monies
Tr4,11ofer Committeo to control
exeoutien of the
"This Oemmittee will regulate the
deposited

program for deliveries in kind




acimataamtiumumir

the

11.110001

757717

um

A4ak000 401,

Lam;" dr,v157riaT

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C.fmerrl

A:Age 7

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Vivo qtx?

1

orthig of the

1

l)rr.,111.

It ja

L.,

tited not sush orb/U*41.one msy not, howcvor, pass La sny
fer :,'ormlttee or reltir to

y upon tLo poners of the

rholly go414 oololy ?4thin their oor:rrAonoe,

atn1 objeot oS these xempt.tone from arbitration ig clearly
pleserve uai:hmrsred r.414 um:Alb:out to e7terual Impeilmmt the

splete control of the Trtnefer r3otter'

t?..e

f.ntiro

era

the treoloter of .,11 funds,

thf loondan 4grefiLents the '.:rotefer -mar

e ,rertut
ee iu entitle

to oontrA the rrboe*4f rr

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t.h.i.t

is control by Ito

t c

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m agrestaent to Tsrovide

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i

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7 time by te wyrlicit sa'no f
BC lf.

Asy the Agant General, r.-tr

t;IrL;:o

C&Lt of

the Tronsfer77ow,,ittee, o7en cal4 7r4.1rAtin accounts. iL

outiast

'foreign Ourrencl

Germany?

Ulcier the "er.(1'




743yrto

bya4leouilt for
Gerainy f raration vPr*

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tir OTOtIP,21e. -problem of the

not hr-,npreti. in olverece "by rocas:61one
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ir very 7ttore lloore,tionery,

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t4i

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t:18.011i1-4021'

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16 tebi.1915.

TM *Font Comma'.

(4)

cs

"The Oommittee shall h:.ve power "to convert these

bank bulencee into .'oreign ourrencieS from time to time, and,
afttr tonverslon, to remit tktem in soc)rdauce loith the in-

btructions of the Aqeratien 4lommi.sion" iertiole IV,ennex II).
on

The ctlestionrities tq,other

inclnaictent with the pobaittility G.; a0avort*

coubtruction, 1
in

funds into :r;eani ,Jurrencles lo_' depalt
whether it forein that filndu mnbt be converted excIuavelx
for 11rediute relAttuce. to the .eetro.

ant

observed at the
ten;

a.,10

)1iLlatti, Vhet t) re ii.

ti at t.cre muA be no

and refAttsnee.

InCeed,

It 4111 be

,ti;ui;:tiOn in the

1/

1.z

111). 4eti,64n1 conversion

frIm

t%crit were wri it L-truetiols

the i.eperetioA ;.;ommiction and 411 excellent or:ortunits to

oonvert occurred, it -a wad be ostrsordin,x/ to learn thut

U s Trsnefor Committee must lohe Vat opportuniti ,n oome
If.

theory that it oanrot hold forelem currencies ellrobd.

in tho lone run, more tartlets currencies could be becured
and more ri.ferLtions traucicrred 14 the holding It

_1711111

forein currencies ebrobd un4er the control ar the

olznAttee,

it aould alba be extreorainarg to learis thet the _:ammittet

was um.ble

huti to esAst the creditor :4vernments

Tt

be obi...rm, tie% there is no ctiT.u:,tion in the

Just quoted el to Olere end h

the eonvercion it

ti t

".2he mechanism is :eft to the bu4inhea commonsense of ',rebi

exnertb iAilled in forel.11 exchange.

Intrutb l,rticie IN

of ,:nnex 6 must be reed in Le 1i ht of the fundaltal
tuf;0,hils c)::.

the ".4'....naer Jomzittee -s btastOu above al,

interpreted es suberVing that mr!;iskAl, not 48 entagovi,,tie
to it.




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!-Aimerul.
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c

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ied.

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!.es

proper'',

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ar.d t.13ve ti it ,:n4v,:t net be ar44111 for igolatei provigius
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1

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Ixt

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d.einitoril, or the xalubivo

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J

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-1.'..)reeIat:est tliez,:&e:Iirea from omployine the ';)tetinkiray

isialtationt) infileft

-liajetli

tNe

f tLe :.eic.k,440.11k,

theret,r4to that -in kit* iztarect of

I
:111.4;3;

tt

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t.t ee

1,1/1131 eneb auc 3411id in tarolcu

in i-3rsign bunking itiLtit.ltiens as it iictst
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ookeaunte.



its

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C::31j

IP)

THE AGENT GENERAL FOR RI3PARATION PAYS ENT

CD

:

Berlin

,Paris

it63 Luisenstrasse

18 vie

Tilsitt

.2

Telephone: Wagram 2122-2123
Telegrams: Repagont, Faris.

Norclon 11900-11910
Agentrep, Berlin.

1.ephone:

%rams:

Berlin, 11th March, 1925.

w dear Niemeyer:
I received in due course your letter of February 16, 1925, with
respect to your position on the Recovery Act, and communicated the
substance of it to the Transfer Committee at its meeting on the 18th of
In so far as the British share of the Annuity is concerned

February.

II

think you need have no fear of misunderstanding, on the part of the Committee.

Everybody has assumed that the position would hav3 to be ad-

justed in that regard during the course of the year, and. most of us

have felt that, in vie" of the recommendations of the Finance Ministers'
Conference, it ought to be don:: currertly, from month to month.

The

arrangements which have been made in respect to the March programme
have cleared the air materially on that point, and have more or less
covered it for the time being.

The real question is as to the position of the Transfer Committee,
and on that I have been waitir.; for the Is'ues to develop somewhat more
clearly before writint.., to you.

In the meantime I have, of course, been

in touch with Finlayson, and I assume that throtOs him you have been
keeping acquainted with what is going on, includinE, first, the action
taken by the Transfer Committee at the meeting on February 18th, and,
second, the proEress of the negotiations with the German exporters as to
the possibility of gettint a group of the
amount of sterlina to satisfy
I

gave

a




copy

.

to provide the necessary

requirements of the Recovery Act.

- 2 -

the Transfer Committee resolution to Finlayson on the day of the
meeting, but I am enclosing an additional copy herewith to complete
your records in case it has not already come to your attention.
It has becoile increasingly clear to everybody here that under

present conditions, or even under conditions as they are likely to be
for some time to come, there is little or no possibility of being able
to work out an acceptable system of realizing on a reichsmark credit
for account of the British Government through the sale of reichsmark
hills in London or through operations of the Reichsbank here.

The

fundamental difficulty is that German exporters are still invoicing
the bulk of their exports to England in sterling rather than in reichsmarks and will probably continue to do so fcr a long time to come.
It may be possible gradually to restore the practice of invoicing in
reichsmarks, but it cannot be done over night and at the best it would
take months or possibly years.

Until it is measurably restored tho

market in London would certainly not be broad enough to absorb the
necessary quantity of reichsmark drafts of the kind that was proposed
without endangering the exchange, and anything that might be done from
thin end, through the Reichsbank, could hardly avoid having tho character of a cash transfer.

That, I think we agree, must be avoided.

This leaves us with only two practical possibilities for handling
the Recovery Act.

The first is set forth at some length in the resolu-

tion adopted by the Transfer Committee, and the second is the plan on
which Finlayson has been working, whereby the present system of collections under the Recovery Act would be suspended on the basis of an
undertaking on the part of the principal German exporters to supply




- 3 -

each month the amount of sterling needed for the Act.
41143. if

It looks to me

one or the other of those alternatives would have to be adopted,

and either of them necessarily raises the question of the deposit of
sterling to the account of the Agent General for Reparation Payments
with the Bank of England,

This is, of course, inherent in the first

alternative, which contemplates that the Transfer Committee would
authorize continued reimbursement to the German exporter under the
Recovery Act only if the proceeds of collection are regularly deposited
in sterling to the credit of the Agent General for Reparation Payments
and under control of the Transfer Committee.

And it is equally inherent

in the second alternative, since it presents exactly the same question
of reimbursement to German exporters.

Manifestly this proposal would

only he feasible if the Agent General undertakes to pay an equivalent
sum in reichsmarks to the group of German exporters who furnish the
sterling, and under the Transfer Committee's resolution an undertaking
to this effect could only ho given if the Transfer Committee were
assured control over the sterling resulting from the transaction.

The question of the deposit of sterling to the credit of the Agent
General with the Bank of England is thus squarely presented, and I am
therefore writing you quite fully and frankly about it, as I see it,
From the point of view of the Agent General and the Transfer Committee.

I fully appreciate your desire to be helpful and your unwillingness to
raise questions about the powers of the Transfer Committee which may be
embarrassing.

I cannot escape the conclusior, however, that whether we

like it or not circumstances have already raised the issue in this case
and that since it has been raised it might an well be settled now as
later.




- 4 -

To my mind/the issue is presented in two aspects, first, the

nlicower issue as to the control of the Transfer Committee over the
payments under the Reparation Recovery Acts, and, second, the broad
question as to the power of the Agent General, under the authority or

by direction of the Transfer Committee, to establish and maintain
balances abroad in foreign currencies for the purposes of the Plan.

Both of these questions are quite fundamental, and the second one may
become absolutely vital to the operations of the Transfer Committee.
The questions presented cannot be considered simply from a legal
point of view, but they do raise questions of interpretation under the
Plan and the first thing I did, therefore, was to request the legal
opinion of Mr. Fraser, who is acting as head of the Legal 9ervice under
the Co-ordinating Board.

I received this opinion under date of the

16th of February, 1925, and it seems to me to cover admirably the legal
aspects of the matter.

It was circulated among the members of the

Transfer Committee at the last meeting, and I am enclosing a copy of
it herewith for your information.

To take up first the question of the payments on account of the
Recovery Act, it seems to me that from a legal point of view the Transfer
Committee's jurisdiction is perfectly clear, and Fraser's legal opinion
to this effect has recently been reinforced by the more specific statement which he made in any behalf before the Permanent Managing Committee

of the Reparation Commission at its meeting on February 27th, a copy of
which is enclosed herewith in the form of extracts from the Minutes.
The difficulties with respect to the March programme, which came before

the Commission at this meeting, illustrate admirably the necessity of




OM

5

bringing the Recovery Act payments into harmony with the rest of the

44ments under the Plan, and at the same time show how ineffective the
control is for all practical purposes under the present system.

The

Transfer Committee even now has absolute control in the sense that it
could at any time refuse to continue reimbursement to the German exporters, which would in turn bring about either a revision or suspension
of the operation of the Recovery Act in Great Britain.

This form of

control, however, is too drastic to be useful for ordinary practical
purposes.

It could be exercised effectively enough to force a stoppage

of the Act, but even then it would be at the expense of a considerable
shock to trade and commerce, and it is not the kind of control that can
be administered in an orderly manner from month to month.
As 1 understand the arrangements which have been made in Paris,
the Reparation Commission's approval of the March programme was conditicned upon the undertaking of the British Government to repay to
the Agent General at the end of the month any excess which may have been
collected under the Recovery Act over and above the amount allotted to
the British Government for the month.

My understanding i5 that this re-

payment will be effected by the deposit of the equivalent amount in
sterling to the credit of the Agent General for Reparation Payments
with the Bank of England.

This arrangement I was willing to accept as

a compromise to meet the practical necessities of the moment, but it

would not be sufficient as a basis for future operations.

For obvious

reasons I could not accept the principle of reimbursement for the purposes of doing business with the Powers, and, as Fraser pointed out in

his statement to the Commission, it is clear that voluntary repayment




at the end of the month of any overpayment which the British
Government may have collected during the month does not in any

it'proper sense give the Transfer Committee the control over
Recovery Act payments which was contemplated by the Plan.

It

does not give the Transfer Committee the opportunity to exercise
its admitted jurisdiction, and it puts the whole question on the
wrong basis.

It confronts the Transfer Committee and the Agent

General with an accomplished fact, namely, that the British
Government by direct action, and without consultation with the
Transfer Committee, has taken the amount of sterling which it
desires each month out of German exports to England, leaving the
Agent General with a resulting obligation to reimburse the
German exporter in reichsmarks and with no protection except an
aggreement of the British government to restore any excess over
itd allotted share.

If the only problem involved in administer-

ing the Experts' Plan were that of keeping the various Governments
within their respective percentages of the Annuities it might be
possible to defend this as a rough and ready compromise.

But

the fact is that it begs the fundamental question of the Transfer
Committee's control, and, within the limits of the British
share; takes the administration of the Plan out of the hands of
the duly constituted authorities.

This last aspect of the matter

is not without its practical aspects, for the time is coming,

owing to the irregular nature of the Annuity payments; when the
income accruing to the Annuity in a given month may not provide
sufficient funds to cover the normal monthly programme, and in
that event the effect of permitting the Recovery Act to operate
on its present basis would be to give the British Government
a

preference over everyone else, and perhaps to create a real

shortage of funds.



The so-called lag in the payment of vouchers does not give
answer to the difficulties.

Whether or not there is a lag,

the fact of the matter is that the British Government has collected
the sterling in England and, therefore, has the money.

This gives

rise to a corresponding obligation on the part of the Agent
General to make reimbursement tc the German exporter of the
equivalent sum in reichsmarks, and this sum has to be carried as
an accrued liability in the Annuity accounts even though the
vouchers have not actually been presented for payment.
In these circumstances I see no alternative left except to
put the sterling to the credit of the Agent General for Reparation
Payments and under the control of the Transfer Committee.

This

makes it possible for the Transfer Committee to exercise the same
control over Recovery Act payments that it already exercises over
deliveries in kind, thus carrying out faithfully the provisions
of the Plan to the effect that payments under the Recovery Acts
are to be regarded as deliveries in kind

.

It does not seem to

me that under such an arrangement the British Government would
lose anything to which it is rightfully entitled under the Plan.
In the ordinary course of events the practice would he, as set
out in the resolution of the Transfer Committee, to make payments
out of this sterling at regular intervals to the British Government, within the limits of its share of the Annuity.

This would

always be subject to the decision of the Transfer Committee as to

how far the payments could be made without endangering the German
exchange, but this is a condition applicable to all payments under
the Plan including deliveries in kind as well as payments under
the Recovery Acts.




I do not see, therefore, that its application

could in any sense operate to the prejudice of the liritish
Government.

As I understand your position you have tgo principal objections to the deposit of the sterling to the credit of the Agent
General for Reparation Payments, the first being that it involves
you in legislative difficulties in view of the provisions of the
existing. Reparation Recovery Act.

valid objection.

I cannot see that this is a

All of us have assumed from the first that any

of the changes under discussion with respect to the Recovery Act
might involve some modification of the existing

Act, and I

should think that whatever modification may be necessary to
cover this point could be made without additional difficulty.

I am not able, of course, to give any useful opinion as to the
construction of a -fBritish statute, but even the present law seems

to me to contemplate something not very different from what the
Transfer Committee proposes, for it speaks in terms of depositing
the collections to a "special account", in such manner as the
Treasury may direct, and earmarks the funds as being intended to
discharge the reparation obligations of Germany.

If, as I

understand you feel, this paragraph has to be modified I should

think it would be a perfect anser to any partiarentary objection
to point out that since the enactrent og the hecovery Act the
British Government has signed the London Agreement, which
constitutes in effect a new treaty and supersedes the provisions
of the Recovery Act

in so far as inconsistent therewith.

To

state it in a slightly different way, the London Agreement
regulates the reparation obligations of Germany by setting up
the Transfer Committee and endowing it with broad powers over the
transfer of German payments, and any change that may be neec!ed

in the law in order to bring the Reparation Recovery Act into




g

harmony with this new definition of Germany 1s obligations raises

no new question but is merely a step taken by the Government in

ikrder to carry out an already existing commitment.
I understand your other objection it arises from your

As

feeling that the Transfer Committee has no power under the Plan to
authorise the Agent General to open and maintain accounts abroad
in foreign currencies.

to which I referred

This raises the second and broader issue

at the beginning of this letter, and on

this question also it seems to me that Fraser's opinion is quite
conclusive.

It is hardly necessary for me to add to the legal

arguments which he advances, but since your letter indicates a
good deal of doubt on this point it may be just as well for me
to melte a few remarks, first, on the question of law, and, second,
on the business aspects of the matter.

From the legal point of view I do not personally see how there
can be the slightest

doubt about the construction of the Plan.

The provision which you paraphrase from Annex 6 reads as follows:
Ii.

The Committee shall have power, and it shall be its duty:

(b) to convert these bank balances into foreign currencies
from time to time and, after converaion,_to remit them
in accordance with the instructions of the Reparation
Commission.

Elsewhere in the Plan it is stated to be the duty of the Transfer
Committee to secure "the maximum transfers without bringing about
instability of the currency".

.iloreover, the provision

above-quoted from Paragraph IV (b) is followed by a general
provision which you do not quote, readin& as follows:




"Froth the foregoing powers (a) ond (b) to be exercised
to the extent to which in the judgment of the

Comitee, tie foreign exchange market will permit,
7371Eolit-i-Ereatening the stability of the German
currency ".

- 10 -

It seems to me that these several provisions indicate, as clearly
lie

it is possible for language to indicate, that there are two

independent processes involved in the operation, that is to say,
first, the conversion of mark balances into foreign currencies,
and, second, their remittance after conversion,

It is expressly

provided the power is to be exercised to the extent to which, in
the judgment of the Committee, the foreign exchange market will
permit, and this must mean that the Committee is free to stop with

the first step, that is to say, the convern into foreign
currencies, if in its judgment it is not safe to proceed with the
final step of distributing the funds among the Power:.

To speak in more general terms, the Transfer Committee has
been entrusted by the Plan with the duty of securing the maximum
transfers that can be made without bringing about instability
of the German currency.

The language of the Plan about maintain-

ing balances and converting marks into foreign currencies must be
construed not as being restrictive but as being intended to give
the Committee the facilities which it manifestly needs in order
to discharge its responsibilities.
principle of construction-

This is almost the first

The language used is not in the least

ambiguous or uncertain, and I do not see any basis for giving it
a restrictive construction.

From a practical point of view the case is even clearer.

The

Plan expressly provides, as I have said, that the Transfer Committee
is intended to secure the maximum transfers without bringing about

instability of the German currency; and I should suppose it was
desired that the Committee should accomplish this result to the
best of its ability.



It is manifest

that the eomeittee cannot do this if it is hampered in its
rations by never being able to take but one position in respect
Ilr
always
to the exchange market, or, in other words, if it must/be a seller

and can never be a buyer of Geman exchange.

To put the case more

specifically, it must be clear to anyone hav!g experience with the
foreign exchanees that the Transfer Committee will necessarily have
to feel its way in mal:ing cash transfers, and that in general its

policy will always have to be put just enough, but not too much,
pressure on the Gexelan mark*

To do this safely it must have some

margin of safety in the form of reserve balances abroad in fereign
currencies out of which

it could buy marls if at any time the

transfers seemed to be endangering the stability of the German
currency.

To adopt your construction would mean that the TIensfer

Committee could never meeee a conversion into foreign currencies

except for the purpose of immediate and final payment to the
Governments, or, in other words, that the Transfer Committeels action

in converting marks into foreign currencies would always be
irrevocable.

Aa a practical matter this would put the Committee

in an impossible position.

On the one hen0. it would be helpless

to discharge its very great responsibilities in respect to the
Germen exchange if it were deprived of all means of protecting
itself against mistakes of judgment or unforeseen contingencies.

On the other hand, the eomnittee would not be able to discharge
to the full its responsibilities in respect to the ellied and
;associated Powers, for the reason that

if the Comeittee must

always be a seller and can never be a buyer of German exchange it

will be instinctively and inevitably more hesitant in maing
transfers.

It would be deprived of all opportunity to test out


the maret, and


wou'd have to regard all its purchaces of foreign

.

12

-

cur,,encies as final irrevocable.

Altogether, therefore, it seems

that the position -which you suggest would work directly
against the interests of the Allied and f _ssociated Powers, for it

is sure to reduce the capacity of the Transfer Committee to make
transfers and to out down the &mount of cash transfers available
to the Governments.
There is another/gri0.626gtion which points in exactly

the same direction.

If the Transfer Committee is going to secure

the maximum possible transfers it has got to do what everyone else
In a similar position must do, namely to buy foreign currencies
:pith its mark balances as and when the market permits.

The foreign

exchange market is necessarily subject to many influences not under
the control of the Transfer Committee or of the Governments, and
its movements cannot be expected to synchronize exactly with the
needs of the Allied and :,ssociated Governments or with the schedule

It must be the policy of the Trans

of payments under the Annuity.

fer Committee, therefore, to buy foreign exchange whenever it is
available, whether or not it is to be used for immediate disbursement
to the Lllied Governments, and in doing this the Committee will
naturally have to follow the seine policy which anyone else with

large needs for foreign currencies would follow, namely, to
accumulate foreign currencies abroad against the day when they will
be needed for disbursement.

I do not lmovv, for example, th;e

course of your operations with respect to the debt to /A:merlon., but

I suppose that your Treasury follows exactly this policy in
accumulating the funds needed for the semi-annual payments on
account of interest and amortisation.
substantially the

It is only by pursuing

same tactics, and getting foreign eeexchangm

whenever it safely can, that the Transfer Committee will Ne abBe
to secure the maximum transfers.



This being the case, the effect of holding to your position
against the establish;aert o..i7 foreign accounts to the credit of

the

Agent General is to play directly into the hands Of the Germans.
If there are to be any substantial cash transfers somebody will have
to accumulate the foreign currencies for the purpose, and if you
adopt a construction under which the Agent General cannot accumulate
these balances for the Transfer Committee the inevitable result is
to throw the Ilgent General and the Transfer Committee completely

into the hands of the Reichsbank, for if the Transfer Committee
cannot accumulate the balances itself it will have to depend upon
their accumulation by the Reichsbank.

I should suppose that,

generally speaking, the Allied and issociated Governments would
prefer to have their own representatives handle the funds than to
rely on the Reichsbank to make the accumulation for the purpose.
Another point that must be kept in mind is the relation of
this question to the service

of the Germ

Both the Agent General and the Transfer Committee have assumed very
definite responsibilities in relation to the service of the Loan,
and practically the whole service has to be accomplished in foreign
currencies.

The total amount involved Is about 92,000,000 goldmarks

a year, and from time to time special measures will undoubtedly
have to be taken that will involve the establishment and maintenanre
of foreign balances, either with a view to arranging the service of
the Loan more conveniently or with a view to protecting the servioe
against various contingencies.

It is manifest that the Agent

General and the Transfer Committee must be free to use whatever
facilities may in their judgment be necessary for dischllarging

the responsibilities which they have undertaken in refetrence to

the Loan, and. if this involves the establishment of for*ign



14 balances from time to time in the
These conclusions seem to me
conceive that anyone can properly
at them onlafter much study on my

name of the Agent General I do not
inevitable, and I have arrived
offer objection.
own part and a good deal of

consultation with people having practical experience in such matters.
The other members of the Transfer Committee have all indicated the
same opinion whenever the question has come up, and, as you probably
know, Mr. Henry Bell has written a letter to

Governor Norma+tating

the same conclusions with respect to the transfer problem, and
particularly with respect to the necessity of having balances
abroad in foreign currencies.

I attach the greatest importance

to his opirAon because he speaks not merely as a member of the
Transfer Committee but also with the practical judgment
banker of unusually wide experience.

lof a

I have also discussed the

question at some length with Governor Norman, and with Sir Robert
Kindersley and Sir Josiah Stamp, and I understand them all to be
in full accord.

To put this all in a nutshell, the situation is that the
Experts' Plan has set up a Transfer Committee with a far.
reaching powers and responsibilities, in an effort to reach a
satisfactory solution of the so-called transfer problem.

That

problem is in many ways a new one and it presents unique
difficulties.

The world has never known the problem before in

anytting like

this magnitude, and under the most favourable

conditions it is one of unexampled intricacy and difficulty.

It

is the keystone of the Experts' Plan, and the ability of the
Transfer Conviittee to work it out is going to determine very

largely the success or failure of the Plan.

Manifestly the

provisions of the Plan relating to the functions of the Transfer
Committeqmust be given an interpretation that will make them

effective, and must be construed as giving to the Committee the







7

LJ

C)

EXTRACT FROM MINUTES CF 5TH MEETING OF TRANSFER COMMITTM45
> erp

-.ZLIN, FEBRUARY 18, 1925.

It

crCD

*S.

;:t1

111PL

Cr
-

The Transfer Committee, at its meeting on the 18th February 1025,

ook the following action, ty unanimous vote. on the subject of the

eparation Recovery Acts:

The Committee took note of the efforts that had teen made to find
satisfactory substitute for the present system of collection under the

ritish Reparation Recovery Act, on a basis that would permit the payment

f the tax on a statistical basis through periodical credits in reichs-

arks on the books of the Agent General for Reparation Payments, and

oted further that after canvassing all the possibilities there seemed

o be little or no likelihood of being able to work out at this time an

cceptable method of realising on the reiehsmarks thus credited for

ccount of the British Government, in view of the general practice

mong German exporters to invoice their exports to England in sterling

ather than in reichsmarks,

It was the sense of the Committee, assuming that the present

ystem of collection under the Reparation Recovery Acts is to continue,

hat the Transfer Committee would itself be in

position to authorise

ontinued reimbursement to German exporters under the Acts only if the

roceeds of collection by the respective Governments under their

eparation Recovery Acts are regularly deposited, in the foreign

urrencies, to the credit of the Agent General for Reparation Payments,

o as to place them under control of the Transfer Committee, as

ontemplated by the Expertsl Plan, and assure tc the Committee the saAo

ontrol over Recovery Act payments as it already exercises over payments

or deliveries in kind, the understanding bean -;that the funds thus

eposited would in turn be available, in so far as may be possible in

he judgment of the Transfer Committee without endangerinr the German

xchange for payment at regular intervals to the respective Governments

n account of their resTlective Reparation Recovery Acts, ,rithin the

imits of their respective shares of the annuities under the Plan.



AU!

30

-12- 24

MORGAN, HARIES & CO.
(Reg. Cornce. Seine No 33562)

Path,

/

n despatched to




guk-Aiv1:;'D)

L AGENT GENERAL

THE AGENT GENERAL
OR REPARATION PAYMENTS

DES PAIEMENTS DE REPARATIONS
PARIS
18 RUE DE TILSITT

BERLIN
111LUISENSTRAHRE
33

NVADR AIN 2122..21.23

TELEPHONE: NORDMV 1190611910
TELEGRAMS: AGENTRI3.. BERLIN

TELEGRAmaucs : REPAGE NT. PARIS

BERLIN 9 atm 5th, 19E5

PERSONAL AND CONFIDENTIAL.

_12ke,e1.1qt

6!

My dear Governor:

I have just heard from Governor Norman that there is a chance
of your coming to Europe within the next month or two, and that if
you do come Norman is planning to make a trip to Berlin with you.
I hope very much that you will decide to come.

I should love to

see you and talk things over, and I am sure you would find the trip
interesting from your own point of view.

It is really necessary to

see Germany in order to get a picture of the situation over here, and
I should particularly like to have you meet and get to know Schaoht.
Norman already knows him well.

It would be a first-rate thing all

around if Schacht could also establish contacts with New York, particularly with the Federal Reserve Bank.
I hope you will let me know, by cable if possible, whether you are
coming over and, if so, when you are likely to be in Berlin.

If you

prefer, the cable could come by code either through the American Embassy
here or through Morgan, Harjes.
will plan to stay with us.

When you do come I hope also that you

We can give you the spare room and put you

up just as quietly as you would like to have it.
With best regards, I am,
Sincerely yours,

Benjamin Strong, Esq.,
Governor, Federal Reserve Bank,
New York, N. Y.




J. P. MORGAN &
CO.
CABLE
DEPARTMENT
CAB

ECEIVED FROM

63839.

7:45
MORGAN. HARJES &
CO., PARIS

NEW YORK.

Tune 24, 1925.

For Benjamin
Strong from S.
P.
Gilbort.
Glad to have
message.
Looking forward

to having you here.




6 53 23

/
THE AGENT GENERAL
FOR REPARATION PAYMENTS

L AGENT GENERAL
DES PAIEMENTS DE REPARATIONS

BERLIN
33 LUISENSTRASSE

PARIS
18 RUE DE TILSITT
TELEPHONE: WAGRAIH 2122 -2123
TALEGRAMMES : REPAGE NT. 'AR1$

TELEPHONE: NORDMIT 11900 -11910

TELEGRAMS: AGENTREP. BERLIN

BERLIN

, July 30 , 1925.

My dear Governor:

I am glad to have your letter of July 23, 1925, and to know
how your plans are developing.

I hope that they will ultimately lead

you to Cabourg, for it would be great fun to be able to play together
there for a few weeks.

We are all leaving here on Sunday, August 2nd, and expect to
arrive In Paris early Monday morning.

Mrs. Gilbert and I are then plan-

ning to go by Tuesday night's train to Biarritz to spend three or four
days there with the Morrows.

I expect that we will reach Cabourg about

Monday, August 10th, and that we will settle down there for three or four
weeks.

Mrs. Gilbert's father and mother arrive at Cherbourg on August

12th, and will join us at Cabourg.

I have never seen the place personally, but from all accounts
it ought to be quite perfect.

At any rate it is said to have an excep-

tionally good golf course,as well as good bathing and good tennis.

We

are going to the Grand Hotel, which I understand is the only hotel there.
It Is said to be a really quiet place, and I do hope you will all decide
to come.

Our address in Paris will be the Hotel Crillon, and there may
be a chance of seeing you next Monday or Tuesday.

Do not forget that

my Paris office, on the 5th floor at 18 rue de Tilsitt, is there for you




2

pv.

to use if you would like it, and I want you to feel free to call on it
for anything that it can do to help you.

I cannot tell you how happy I am about the results of your
visit here.

It has done a world of good to have you and Norman make

such a visit to Schacht, and I think that the relationships which have
now been established will be of the greatest assistance in keeping things
on an even keel.

Among other things, it has given Schacht a much broad-

er point of view, and, at the same time, has enormously strengthened
his position at home.

I can tell you more about this when we meet again,

but in the meantime it may interest you to know that his devisen position
is showing consistent improvement these last few days and that he is much
more cheerful about it.

It may interest you also to have the enclosed

copy of the statement which he made a day or two ago before the Central
Committee of the Reichsbank.

Thanking you again for your letter, and hoping to see you all
soon, I am,

Faithfully yours,

Benjamin Strong, Esq.,
c/o Bankers Trust Company,
3 & 5, Place Vendome,
P A R I S.
1 enc.




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C

O

Berlin, eeptember 10, 1925.

PR

CE

My dear Governor:

I was much surprised to find, onreturning to Berlin, that the German
Government had just issued a statement to the effect that public funds will be loaned
to the banks at 72 %, and that even the rate on long-term funds of the Postal Admin-

istration has been reduced to 8%.

This announcement took the form of a statement

from the Ministry of Finance, and I am enclosing a copy of it herewith for your
information.

As you will notice, the statement defines public funds to include not

only funds of the Reich Government but also funds of the Postal authorities, the
German Railway Company, and the Insurance Office of the Reich.

As you will also

notice, the statement says that the reduction in eeteu is being taken "with the cooperation of the Reichsbank."

Schacht has not yet returned, but if it is in fact true that this action
has been taken with the cooperation of the Reichsbank, I can hardly account for his
not having mentioned it in the conversations which we had in London on Monday.

As

a matter of fact, while Strong was present, I asked him particularly whether he now
had satisfactory control over all the vsrious public funds, and he replied categorically that all these funds were now deposited with the Reichsbank and that he was
entirely satisfied.

If, on the other hated, the German Government haa taken this

action without consulting the Reichsbank, the situation seems to me even more serious,
first, because it is a clear indication that there are still important Government funds
which are not yet deposited with the Reichsbenk as contemplated by the Experts' Plan,

and, second, because the Government's readiness to loan out these funds at 7i%, or
thereabouts, is a definite attempt on its part to undercut the Reichsbank and make the
Reichebank's discount rote and credit policy utterly ineffective.
I regard the Government's action as in violation of both the spirit and the




#2

letter of the Experts' Plan and as calling for action accordingly on the part of
It seems to

tieneral Board of the Reichsbamk and on my part as Agent General.

me trist it also has a direct interest to you and the other central banks, for it

is certainly difqcult, if not impossible, to regard the Reichsbank as a proper
central bank so long as its position is subject in such a way as this to the action
of the Government.

In view of the interest which Sir Charles Addis has taken, I am Elso sending
him a. copy of the Finance Ministry's statement, and LAI writing him in
similar vein.

Faithfully yours,
S. Parker Gilbert.

The Honorable
Montagu C. Norman,
Governor of the Bank of England,
Threadneedle Street, E.C.2,
London.
1 Enc.




N.

somewhat

9th September, 1925.

jrThe Berlin morning papers of September 8th published the following:

"The Ministry of Finance of the Reich publishes the following communiqub:

"In order to carry out the contemplated measures to lower prices, the
Government of the Reich recently decided to administer the public funds of the Reich
in such manner that not only no danger of an increase in private rates for money
should occur, but that, on the contrary, the stimulus for their lowering should be
given.

Therefore, with the cooperation of the Reichebank, an agreement has been

reached between those offices which loan public funds - i.e., between the Ministry
of Finance of the Reich, the Postal Authorities, the German Railway Company and the
Insurance Office of the Reich - that when funds are loaned to those banks which are
entrusted with the further distribution of public funds the interest rate may not
exceed at present 7t%.

The interest rate for long term funds of the Postal Adminis-

tration has been reduced to 8%.

The banks entrusted with the further distribution

of public funds have undertaken to cause the benefit of this reduction of interest
to be passed on in full degree to their customers, and, furthermore, to restrict their
interest margin to the lowest possible measure.

Definite agreements have been made

on this point."
According to the "Berliner Tageblstt" of September 9th (morning edition),

the Berlin Stempel-Vereinigung held a meeting yesterday to discuss the question of
how this organization could participate in the action to reduce prices.

It was de-

cided that the Stempel-Vereinigung should reduce their credit commissions but leave
the interest rate unchanged.




Berlin, September 12, 1925.
From:
40111M-

The Agent General for Reparation Payments.
The Finance Minister of the Reich, Berlin.

Dear Mr. Mirister:

I have noted with much interest the statement from the Finance Ministry

of the Reich which appeared in the Berlin morning newspapers of September 8, 1925,
summarizing various recent changes in the administration of the public funds of the
Reich.

I notice with particular interest that the offices which the statement de-

scribes as lenders of public funds are the Finance Ministry of the Reich, the Postal
Authorities, the uerman Railway Company and the Insurance Office of the Reich.

The situation created by this accumulation of public funds is in many ways
unique; and while the size of it in common report may be exaggerated,

any measures

which you may be taking to deal with it are of high interest, and necessarily have
an intimate relation to all activities concerned with the German economy.
I am accordingly moved to ask you for certain additional information,
supplementing what was given in your newspaper statement.

I should appreciate, first

of all, your best information as to the total volume of funds controlled by each of
the offices mentioned above, and as to the amounts which will be available in each case
for employment under the programme which has been announced.

I recall that last

February, when the methods of placing postal funds were revised, a procedure was made
public in outline showing how the postal funds were to be employed, and through what
agencies they were to be placed.

I should much appreciate it also if I might receive

now a similar outline in such detail as possible, showing in what forms of investment
the various lending offices referred to intend to employ their funds, and through what
banking or other agencies the funds in question will be placed.




Respectfully,

Parker Gilbert
Agent General for Reparation Payments.

(signed)

PRIVATE

September 13, 1925.

!4y dear Governor:

In view of my letter of September 10 about the statement recently
issued by the German Government as to the distribution of public funds, it may interest you to know that evidence seems to be accumulating to the effect that the
Government is following a well defined policy of putting pressure on the Reichsbank
to reduce its discount rate and loosen ur its credit policy.

I heer privately

that Schacht was furious that the Government should have issued the statement which
I have already sent you and that this statement actually was issued without consulting him.

I gather that to some extent at least the statement is a political man-

oeuver on the part of the Government, designed to put some of the burden for the
increasing cost of living on the banks, and particularly on the Reichsbank.

It may

not in fact mean much change in policy, but it makes Schacht's position all the more
uncomfortable.

Yesterday morning, for example, the Tageliche Rundschau, the official

organ of the People's Party (which means Stresemann) carries the move a little further
with a new article explaining the various measures which the Government is supposed
to be taking to bring about a lowering of the cost of living, and stating among other
things that the Reich Government is now approaching the States and Communes with a
view to causing them to follow, in the administration of their funds, the same principles as those announced by the Finance Ministry in the statement of September 8.

The article goes on to state that the Reichsbank intends to adjust its discount policy
to the measures of the Government, and that it will shortly reduce its official disount rate by one per cent.

I can hardly believe that this last statement is true,

or this is certainly not the time for the Reichsbank to lower its discount rate.
s a matter of fact, I should say that if it does anything it ought to raise its

*scount rate, particularly if there is going to be any suggestion that the Transfer
mmittee ought to take steps to reduce to some extent the scale of deliveries in




kind and recovery act payments.

My information is that Schacht is actually

thinking of putting some such suggestion on the Agenda of the next meeting of the

It

Get!'

Council.

Incidentally I hear that part of the pressure in Government circles for
a lower discount rate comes from the recent lowering of the discount rate in Austria
and the rather definite prediction from Reisch that there will be a still further
reduction in the Austrian discount rate in the near future.

I must say that it

seems a little surprising even to me that the Austrian rate should come down so much
at just this time, and it is, of course, almost impossible for the German mind to
understand how Austria could be able to have a lower bank rate than Germany.

The most unnatural thing in the German situation, it seems to me, is the
enormous accumulation of funds in the hands of the Reich Government, the States and
Communes, and other semi-public institutions such as the Post Office and the German
Railway Company.

Estimates differ as to the total of those funds, but I understand

that according to the Reichebank's latest estimate the aggregate anounts to over
two milliards of marks and I have heard of estimates running as high as three and
one-half milliards.
significance.

Even at two milliards such an accumulation is of the utmost

It means, in the first place, that the Governmental authorities are takirg

liout of productive uses an enormous fund of liquid money, at a time when the liquid

capital of Germany is at an exceptionally low level and the greatest need of the
country is for more working capital it production.

It also means that the Government,

in its various forms, controls the largest aggregation of liquid money in Germany,

and is thus able to undermine the Reichsbank and make the Reichebank's policy meaningless.

One of the worst things about the whole business is the general lack of

frankness in dealing with it.

There is, for example, a most astonishing lack of

public information as to what is going on, and it is almost impossible for anyone to
find out what the various funds amount to or how they are being handled.

The first

step which I have taken, therefore, is to make inquiries of the Finance Minister as




h3

to what his statement means, and as to where and how he is planning to put out the
money.

I have done this by a formal letter of September 12, 1925, end am enclosing

a c.0, of it herewith for your private information in the thought that it may be
interesting to you to have it.

I 8M writing Sir Charles Addis substantially to the same effect in order
that he may be informed as to developments.
Faithfully yours,

S. PARKER GILBERT

The Honorable
Montagu C. Norman,
Governor of the Bank of England,
Threadneedle Street, E.C. 2,

LMON.
1 Enc.




L AGENT GENERAL

THE AGENT GENERAL
FOR REPARATION PAYMENTS

DES PATEMENTS DE REPARATIONS

BERLIN
33 LUISENSTRASSE

18 RUE DE TILSITT

7

PAR I S

L E PHONE WAG R AM 2L22 -2 L23

HONE: NORDEN 11900-11910
'RAMS: A GENT1REP. BERLIN

TELEORAIMMES: REPAGENT. PARIS

BERLIN

September 14, 1925.

PRIVATE

My dear Governor:
It is difficult at this distance to keep you currently advised as to the developments in the situation here,
but one rather striking thing has happened within the past
week and I think it will be helpful for you to know about it.
It took the form of a statement issued by the Finance Ministry
on the 8th of September, announcing a new system of distributing public funds at relatively low rates of interest.

I am

enclosing a copy of the statement herewith for your information,
together with copies of two letters dated September 10th and
September 13th, 1925, which I sent to Governor Norman in order
to give him the picture as I see it.

As you will notice the Finance Ministry issued its
statement while Schacht was in London.

I think that to some

extent it is a bluff, and that in this sense it is designed
to help the Government in its difficulties about the increasing cost of living.

The statement none the less seems tome

of the utmost significance, and I think it shows the Government's hand perhaps more than the Government itself intended.
As n ratter of fast, the present Government has done nearly eve77
thing in its power during the time which it has held office to
raise the level of prices and increase the cost of living in




-2-

The credit policy of the Reichsbank has been practically

Germany.

the only factor working for deflation and lower prices, and I

believe that there is in consequence a growing divergence between
the Reichsbank and the Government.

The inevitable effect, it

seems to me, of the Government's announced policy as to the distribution of public funds would be to make the Reichsbahk's policy
meaningless and contribute materially to the raising of prices
rather than to lowering them.

I imagine that this, in fac, may be

the Government's intention.

I am planning a rather heavy attack on this whole business in my next Report, which is due to come out about the middle
of October.

In the mean time, there is sure to be some discussion

of the subject at the next meeting of the General Council of the
Reichsbank, which falls on September 30th, particularly if there
should be any suggestion at that meeting about reducing deliveries in
kind or recovery act payments on account of the position of the
Reichsbank.

It is quite possible, also, that I may have to move

directly on the Government if the situation continues to develop
on its present lines.

I have already taken the first step in this

direction by sending a formal note of inquiry to the Finance
Minister, a copy of which I am also enclosing for your information,
asking for his best information as to the volume of public funds
available for distribution and the ways and means by which they will
be distributed.

As soon as there are any other special develop-

ments in the situation I will let you know.




-3-

to
It was good to see you again in London, and

with you and the
have the opportunity of talking things over
others at the Bank.

I hope that you have had a good trip

rest en route.
back and have been able to snatch a little

With best regards, I am,
Faithfully yours,

Benjamin Strong, Esq.,
Governor, Federal Reserve Bank,
NEVI YORK,N. Y.

4 ends.




September 17, 1925

PRIVATE

Ay der Govrnor:
I have just received your private letter of the 14th

of September, 1925, in answer to my letter of the 10th of oeptember
about the statement issued by the Finance Ministry.

I hive since written

you two other letters, and I undereand that Bruins hda also tent you a
copy of his litter of the 15th of September to sir C:.srlee Addis, all of

which All meke the eituttion eomewhat clearer.
I here no reason to think thet Schecht hes not been actire;
quite fairly in the whole matter.

On the contrary I :2 ink his position

has been perfectly sounu, and I strongly eymp.thihe with it.

The fact is

neverthelete that Schacht is acting under heavy preeuure, arising primarily
from the rather serious eivergence between the policy of the Feiehsbenk
and the policy of the Government.

This naturally puts him under come

restreint.

I think it become. increasingly clt r

&a I have already

written you, thet the statement issued by the Finance Ministry was largely
a political menoeuvtr, and that the statement itself may not mean much
actual olange.

On the other hand, it will not do to ignore whet the German

Government is actually uoing, and from this point of view the chief eignificanoe of the statement, and in fact its chief value, is that it chows the
Government's hand much more then, I think, it intended to do.

There is

no doubt et dl that the Seehendlunz (The Prueeien State Dinh) and the
Reichskreditgeuellscheft are doing an extraordinarily large business, much

of "ask it with public funds.

The Seehendiun6 probetly operetee chiefly

with funds of the Prussian State and of the Reichs Poet, *Atha the




- 2*

ichskreditgesellschaft id entirely owned by the Government of the Reich an

certainly depends, directly or indirectly, on the fund of the
,4314 seem

eichs.

No

to know, or at least, no one is willing to tell, 41A the exact

facts are, either as to the nature of the various nands at the disposal of
these two institutions, or as to the amounts which are being handled through
them.

The Reichskreditgesellschaft, for example, never issues a statement

of its condition, though it is supposed to be doing a business about as large as
that of the Disconto-Gesellscheft.

Its officials, for example, are openly

boasting of doing one of the largest banking businesses in Germany, and have
even been saying, recently that the heichskreditgesellseheft stands in the
same relation to the Government of the Reich that the Lpeehendlung holds in
relation to the otete or Pruasie.

As nearly es I can find out, moreover,

it seems to be the practice of the Reichskreditgeeellscheft to act as a
kind of reaiscount bank for the other German benke,

r-Jid I understand that it

occasionally makes rather large reaiecounto even for some of the "0" banks.

The Seehenalune does occasionally publish e statement, but not a specially
informative one.

According

o its latest statement its deposits are

at a very high figure and have increased by several hundred million merke
curing the past three months.

Generally speaking, the Itnagement of the

Seehendlung seems to be thoroughly bureaucratic, and frequently stupid.
I

,2m ,,xiting you this much in aetA.1 becemee there may be a ten -

dency, perhaps even on Schechtle part, to maintain that everything is
all right and that there is no danger to the Reichsbenk in this situation.

Thtre hes already been, for exempla an amazing amount of quibbling about
what are or are not public funds and you can be elmost sure th-t any one

here who makes a statement about the disposition of public funds does it with
mental reservations as to whet the term means.

That, in fact, is the one

great beauty of the Finance Ministry's statement of last week,




or it does

-5-

frenkly include the principel cetegories of public or semi-public funds
under thu definition.

From the point or view of transfer, the question

at manifestly of the utmost significance.

I do not see, for example, how

I can be expeuted to regerd the Reichsbenk as the Centre]. Bank for purposes

of forming a judgment about the possibilities of tranefer when the German
Government

is using at least two or throe other institutions to perform

central bankia; fundtions and leevin;

the

Reichsbenk to ect as the

guardian of the count y's reserves of gold and foreign devisen, while depriving it of its natured resources and of the necessary control over
credits.

in letter had in spirit the policy that the Gerumn Government

is following, violdtee, it seeme to me, the provision s of the Pl n, Ald

it comes dangerously neer to :mountin8 to a "finenei91 maneuver" within
the terms Of the ?1 .n end the Loneoa Agreemene.
:rom every point of vie'.', it 660M0 to me of the utmost
importance noe thet the is _:ut had been more or less

openly rAeec, to ex-

plore as completely ee po-eiLle the feete in the situation and to

take

appropriate action to correct the Gersten Govornmentte policy.
Sincerely yours,
(eigned)

S. PARKER GILBERT

The Honorable
Montagu G. Norman,
Governor of the bank of England,
Threedneedle street, E. G. 2,
LOA LON

SPGMC

PS:

I em treating this letter as entirely private to you, and NO not
sending; anything of the sort to either Addle or Sell.




THE AGENT GENERAL
FOR REPARATION PAYMENTS

DES PAIEMENTS DE REPARATIONS

BERLIN
35 LUISENSTRASSE

PARIS
18 RUE DE TILSITT

LAGENT GENERAL

T

`PHONE. NORDEN 1190 041910
11111RAMS : AOENTIREP. DERLIN
TE I.

TELEPHONE: WAGRAM 2122 -91.23
TELEGRAMMIC!! : REPAGE NT. PARIS

BERLIN

PERSONAL

September 15, 1925.

My dear Governor:
In accordance with the conversations which we had
over here, I am sending to you herewith a copy of my letter
of the 11th of March, 1925, to Niemeyer, with its enclosures,
on the subject of the Reparation Recovery Act.
As you will notice, the difficulty with Niemeyer at
this stage of the proceedings was that he seemed determined to

raise the question of the Transfer Committee's power to carry
balances of any kind abroad, except for purposes of immediate
transfer to the creditor Powers.

I think I told you in London

that I answered this question immediately by opening accounts
abroad with both the Bank of England and the Federal Reserve
bank in New York, and I am now carrying an account also with the
Bank of France.

Niemeyer was also forced to concede the point

in the settlement which we finally reached on the Recovery Act,
for the agreement for amending the methods of its administration expressly provides for the opening of an account with the

Bank of England in the name of the Agent General for Reparation
Payments, from which withdrawals are to be made by the Agent
General on the direction of the Transfer Committee.




-2-

This disposed of the Recovery Act difficulties with
Great Britain but, as you will also note, I was obliged in arguing the thing out with Niemeyer to go rather deeply into the

broader questions both of the Transfer Committee's powers and
of the methods which it might follow in securing foreign exchange
for purposes of cash transfer.

I have no real doubt about the

question of power, and that is fully covered by Fraser's memoran dam of the 16th of February and my own letter of the 11th of
March.

The other question, as to the practical means of carrying on the exchange operations, is now the really live question,
and I should be very grateful if you would be thinking it over,

with a view to a more definite exchange of opinions in the near
future.

I have in mind, for example, that we might go over it

pretty fully around the first of the year when I hope to be in
New York and that in the meantime you and Mr. Jay might be figuxing out, first, what information you could arrange to make avail-

able to me on the subject of German balances in New York and
German exchange operations through New York, and, second, what
means on our part, would, in actual practice, be best adapted
to the handling of actual cash transfers.

For the present and

the immediate future, when purchases of foreign currencies will

be small and will be chiefly for the service of the loan, I am
pretty well satisfied to handle the business from this end through
the Beichsbahk, but it seems to me that it would be a great mistake to let this be the only channel of operations for the fature.




-3-

i should like very much, for example, to explore the ways
and means of getting at the exchange from the other side, that is to say, through operations in New York and London.
One of the most helpful things, I should think,
would be the development of a more central foreign exchange

market in New York, I am particularly interested in what you
said in London about what seems to be the growing tendency
to create something like a market at the Federal Reserve Bank.
I should much appreciate any suggestions that either

you or Mr. Jay may have to offer on any of these matters, and
I shall look forward particularly to talking them over with
you more fully when we meet again.
Faithfully yours,

Benjamin Strong, Esq.,
Governor, Federal Reserve Bank,
NEW YORK, N. Y.

enes




t: AGENT GENERAL
FOR

PARATION PAYMENTS

I: AGENT GENERAL
DES PAYMENTS DE REPARATIONS
PA R S

BERLIN
33 LUISENSTRAESE

18 RUE DR TILSITT
TELEPHONE: WARR AM 2122-91.23

TELEPHONE: NORDEN 11900-11910
TELEGRAMS: A CIENTFUICP. BERLIN

TEL 111GRAMMES1 RFIPA GEC NT. PARIS

BERLIN

,

October 15, 1925.

ly dear Governor:

I received your secretary's letter of September 30,
1925, enclosing the envelopes in which my letters of September 14th and 15th were received.

I am making an investigation,

and am writing separately to you about both this question and
the various questions covered by your letter of September 30th
to me.

I received this letter in due course by pouch, and

shall send my reply through the same channel.
3incerely yours,

Benjamin Strong, Esq.,
Governor, Federal Tieserve Bank,
33 Liberty Street,
New York, N. Y.




AtOpENT
FOR

GENERAL
EPARATION PAYMENTS

Berlin, Ocober ld, 1925.

PRIVATE

My dear Governor:

I am preparing a more comprehensive letter to you on the subject of
public funds and the heichsbEnkte policy, but it will not be ready for another
day or two.

In the meantime, it may be helpful to you to have cmpiaa of a few

additional exhibits.

I am accordingly enclosing, for your confidential information,

copies of the following documente:

My letter of September 17, 1925, to Governor Norman, indicating
(1)
my innermost thoughts about the situation, perticulerly in so far as
(I have not hitherto sent a copy of thin
concerns Schachtio attituoe.
letter to anyone, but it still holds good, and it may be useful for
you to Love it in connection with Schacht's 7isit.)
A apeech which schacht delivered at Karlsruhe on October 5, 1925,
This, of course, is not conas reported in the Frankfurter Zeitung.
Ae you will notice, it takes quite a strong position bet,inbL
fidential.
municipal borrowing abroad.
(2)

A memorandum which Finlayson, the Financial Attache at the British
Embassy, hre prepared for Lord D'Abernon, summarizing a conversation he
had with Dr. Schacht on the morning of October 7, 1925.
(3)

The memorandum from Finlayson is particularly interesting.

It is quite

characteristic, for exemple, for Schacht to have said that he could not be expected
"to conspire against his own Government."
the chief weakness in his position.

As a matter of feet, it is the cue to

It is natural enough that Schacht should be

embarrassed in relation to th,,, Government, for it is hid own Government which is

doing its best to circumvent the Reichebank's credit policy by carrying on an independent credit

olicy of its own.

of the Government fairly and




Schacht might be expected to fight this policy

2

"barely, whether there were a repan.tions problem or not.
necessary in his own interest as a Central banker.

It would seem to be

But the effect on Schacht is

rather to encourage him to try riding both horses, and he sometimes gets mixed up
in the stories he tells to different people, and even to the same person on different dates.

For example, on the loestion of the Finance Minister's statement

of September 8, 1925, he told me a few days afterwards that he was thoroughly disturbed by the statement, and everything he said and did for a few days indicated
clearly to those around him, as, for example, Bruins and the Yembers of the Direktorium, that ho was perfectly furious that the Finance rinister should have issued
such a statement.

About two weeks later, when the meeting of the General Board of

the Reichsbank was approaching, he spent half an hour telling me that he had seen
the Finance Minister's statement before it was issued and had approved it, on the
theory that if it was issued it would put the Finance Minister more or less in his

power by reason of the admission on the part of the Government that it was willing
to take as low as 7 1/2 or 8 per cent on its funds, thus leaving it open to Schacht
to offer as high a rate to them through giving than bills out of the Reichsbank's

Schacht spent about an hour at the General Board meeting telling the

portfolio.
same story.

To a certain extent it is true, of course, that the Finance rinister's

statement may help in forcing the Government's hand on the question of interest,
but I cannot believe that Schacht's analysis of it from this point of view is anything more than an afterthought.

One thing that may attract your attention in Finlayson's memorandum is
the statement, attributed to Schacht, to the effect that I have




-3-

power under the Plan to ceal with the Verkehrekreditbank situation.

I wish

taiJ were true, but Schacht knows ES well ae anyone that the legal position is
just the reverse.

The Experts' Plan did provide, in so many words, that the

bank account of the Railway Company should be carried with the Reichsbaak.
The Orgardein8 Committee, however, which prepared the Railway Law delibelately

omitted this provision from the Law and included the following statement from its
Report:

The &peeld Ratiaay Annex, article VII., provides that
'the bank account of the railways shall be kept at the New Bank'.
We are not clear es to the precise intention of the Experts on
The Concession es Be have drafted it provides that
this matter.
the permente for the service of the Roparetion Bonds and the
proceeds of the Transport Tax shall be paid into the "Now Bank."
But we have not thought that we were in a position to recommend
the enactment of positive legislation which would have the effect
of depriving the Coupsny of ell control over the uenking arrangemeats which it might be convenient to make, and which could only
he altered hereafter by a very cumbrous procedure."
ihe result is that the Railway Law contains no provision on the subject,

and b3 a idea proposition the Railway Company is bound only by the terms of the
Law.

Both the Railway Company and the German Government have taken this position

from the outset, and Fraser advises me, after en exhaustive study of the question,

that tnere ie not a Chinaman'e chance, from a legal point of view, of requiring
the Railway Company to carry its account with the Reichsbank.

That forces me

to fall back on general considerations which I an quite prepared to press with
vigor but which it is difficult to press to the limit in the absence of a legal
basis.

You are quite at liberty, by the way, to show both this letter and the
enclosures to Governor Strong, and to Mr. Sterrett, if he should still be in
New York.

I am having the letter mailed from London so as to avoid




4
any danger of its being tampered with in the post.
Faithfully yours,
(Signed) S. Parker Gilbert

Gates W. McGarrah, Esq.,
Chairran of the Board,
Mechanics & Metals National Bank,
20 Nassau Street,
New York, N. Y.
3 encls.




AGENT GENERAL
in_ZE"ARATION PAYMENTS

1; AGENT GENERAL

DES PAIEMENTS DE REPARATIONS
PARIS
18 RUE DR TILMITT

BERLIN
33 LUISENSTRASSE

TELEPHONE: WAORAM 21.2 2-.21.2 3
TEL EORANINIES REPAG /I NT. PARIS

TELEPHONE . NORDELS 119 0 0-11910

TELEORAPIS : AGENTS:IMP. BERLIN

PERSONAL.

BERLIN

October 18, 1925.

dear Governor:

I received your letter of October 2, 1925, and

have already sent you a note acknowledging the receipt of
your letter of September 30th, which came safely by pouch.
It is most helpful, and I am writing to you separately
I am glad that in the meantime you will be

about it.

having a good opportunity to impress upon Schacht the really
vital importance of clearing up the question of the public
funds.

I 'cabled MoGarrah along these lines a week or so

ago, and I assume that he has already shown you a copy of
the message.

Sincerely yours,

Benjamin Strong, Esq.,
Governor, Federal Reserve Bank,
33, Liberty Street,
New York, N. Y.




L AGENT GENERAL

THE AGENT GENERAL
FOR4IV,PARATION PAYMENTS

DES PAIENIENTS DE REPARATIONS

BERLIN
35 LUIS EN STRASSE

PARIS
18 RUE DE TILSITT
TELEPHONE: WAG RAM 2 L22 -'1123
TEL ECIRAMVIES : REPAGE NT. PARIS

TELEPHONE : NORE1BN 119 00-11910
TELEGRAMS: ADE?! ITIFIER HEREIN

BERLIN, October 18, 1925.

PRIVATE.

My dear Governor:

I have received your letter of October 5, 1925, and thank you
for giving me the results of the inquiries you have made about practical
foreign exchange men.

I have read over the memorandum which you enclosed,

and am rather better impressed with Klingsmith and Palmer than any of the
others.

I think that for the time being, however, the best thing is to

let the matter rest, until we know a little more at our end just what kind
of a man is likely to be needed.

For the present, of course, there is

not much actual foreign exchange work to do, and there would not be enough
to keep an active man busy.

I should appreciate it, however, if you would keep the matter
in mind, and we might then talk it over further in New York, perhaps in
connection with the more general question as to the practical methods to
be followed in handling cash transfers.

I might even take the opportunity

at that time to see personally one or two of the most likely men,
to have some good possibilities in reserve for eventualities.
With best regards, and many thanks, I am,
Sincerely yours,

Benjamin Strong, Esq.,
Governor, Federal Reserve Bank,
33, Liberty Street,
New York, N. Y.




in order

THE AGENT GENERAL

I: AGENT GENERAL

FOI4WARATION PAYMENTS

DES PAYMENTS DE REPARATIONS

BERLIN
35 LUISENSTRABBE

PARIS
18 HUE DE TILSITT

TEIRPHONE : NORDEN 11900..11910
TELEGIZABA: AHENTREP. BERLIN

TELEPHONE: WAD R A1,1 2122-21.23

T8LEOHAMMES: MIRAGE NT. PARIS

BERLIN , October 18, 1925.

PRIVATE.

My dear Governor:
In view of the various conversations which lie had in the

matter while you were abroad, I think it may interest you to have
copies of (1) a cablegram which I sent on October 16, 1925, to the

Secretary of State on the general question of the Transfer Committee's
attitude toward German loans that may be floated abroad, and (2) a
copy of a letter of this date which I have written to Winston, on
the broader question of the Administration's policy.

I think I am

free to send you also a copy of Winston's letter of September 29, 1925,
to me, and I am accordingly enclosing it herewith.

It explains some

of the references in my letter to him, and I trust you will treat it
as personal and confidential.
Sincerely yours,

Benjamin Strong, Esq.,
Governor, Federal Reserve Bank,
33 Liberty Street,
New York, N. Y.
3 encls.







COPY

THE UNDRSHICRETARY OF THE TH&ASURY
Wasnington
September 29, 1925.
Dear Parker:

I have your letter of September 9th.

We are in the

midst of the French negotiations and I shall not write you at length.

As a matter of fact, the Administration's policy in this matter is not
yet fully determined.

I enclose a copy of the form of letter which the

State Department has been using on German loans.

There is a general

feeling here in Washington that the bond houses which were short of stuff
to sell to their customers were becoming very reckless in what they were
buying.

They seemed to think that if you made a showing that. the borrower

had sufficient assets, that was the only inquiry to be made.

We felt,

however, that in some way the attention of the underwriting houses should
be called to the fact that theirs was the responsibility to determine that

when the principal and interest of a dollar loan was to be paid, the borrower
would have some opportunity of obtaining the dollars and that it was up to
the underwriter, representing his future clients, to pass judgment on the
ability of the proposed loan to pay its way, not only in marks but in exchange
into dollars.

Personally, I feel that the present method of the Administration in handling this foreign loan situation puts a responsibility on the
Administration which it should not take.

The purpose of the form of letter

on German loans was an effort to remove some of this responsibility.
Don't you think Europe is borrowing too much?
Sincerely Fours,
(Signed) Garrard Winston.

Hon. S. Parker Gilbert,
Agent General for Reparation Psvments,
33 Lnisenstrasse, Berlin, German7.

1 enclosure


It is presumed that in considering the disposal of these securities to your American clients you have made sufficient investigation into
the purposes to which the money proceeds will be devoted to assure yourselves
that the loan will increase the productivity of Germany in an amount at

least sufficient to furnish, directly or indirectly, the exchange necessary
for the service of the loan and to facilitate payments under the Dawes plan.
It is also presumed that, in connection with the proposed loan, you have
considered the provisions of the Dawes plan relating to the control of the
transfer of German payments made pursuant to that plan.

The Department of

State does not wish to express any view at this time as to the interpreta-

tion and application of these provisions or as to their effects :f any upon
the service and repayment of loans such as that in question, and the Depart-

ment of course reserves full liberty to take such action if any in the matter
in the future as may be appropriate.

The Department feels, however, that

it should call these matters to your attention.




V

vIk
4.

117413046;.
.

Cotobor 16, 1925.

Dear Garrard
to my
I have your letter of .;eptaMber 2:), 1925, in &sewer

the copy of
letter of September 9, 1925, and thank you for sending me

been using in connection
the form letter which the State Department has
with German 10&128.

the state Department
61110e writing to you, I have heard that

and one banker told me on
has made another change in its form letter,
recommendation, or perhaps
1"riday that it wee now inolnding a specific
the Agent General for
request, that the bankers should make inquiries of
2ransfer Committee toward
Reparation Payments as to the attitude of the
floated abroad.
the service of German loans which night be

'?hie led me

the State Department, and I
to make an immediate inquiry, by cable, of
tufo:viatica.
an enclosing a copy of it herewith for your

Laoldautally,

state the attitude
you will natio., I have taken occasion to
21%.UsfOr ;:amialttee Bas men on the question.

*oh the

This has been its atti-

there is no occasion
tude from the beginning, and, so far as I an aware,
for mipungioretaading about it.

State Department and am,
I have not yet had an answer from the
is doing.
therefore, without definite information as to wht it

3ut if

indicated I must say that the performit is actually following the policy
I should have thought that the
ankle Seem to me too strange for words.




-

- 2 -

least the State Department would do, if it wee planning to make pooh
suggestions as these to issuing bankers, would be to ascertain first
'ghat the attitude of the :ranter Committee was.

It might have been

expected also that as a matter of ordinary oourteiy, it would have sone
a step further and advised me that it less adopting this policy in dealing with the bankers.

but the fact is that I have had no word at all

from the State Department, and have never had even an inquiry from
them as to what the Transfer Committee's position might be.

I suppose

there say be some theory that advise of this sort to the bankers might
smoke out the Zransfer Cormittee, but if so, the tactics seem rather
unneoessary.
tude.

There is no mystery as to the :ranter Committee's atti-

The Committee oonsidered the question at its very first meeting

in Dotober, 1924, and has held consistently ever since to the position
which it took at that time.

I have personally stated the position, it

substantially the words that I have now cabled to the :Auto Department,
to at least tau hundred Amorioan bankers and American banking represen-

tatives, and there is certainly no misunderstanding *bout it on their
part.

In the more general question which you mention, I have felt from
the beginning that the State Deportment was assuming for more responsibil-

ity than it realised in attempting to regulate foreign borrowing in the

United States, and that sooner or later it mold drift into an impossible
position.

From all that I can see and hear, it has already wee danger-

ously near to that point, and I an inclined to interpret some of its recant moves, particularly in sessestios with German loans, as symptoms of




-3-

some disooefort.

It must be a little difficult, for example, for the

Mate Department to explain to the French why it is that the Germans, or
the loles, can borrow no muoh us they please in t:le

no French loan can be floated on any terms.

:cited Jtates while

dInd in retrospect, it mould

be enterestinc to oonaider what the Mate Department oould have said for
itself if it had beet attempting to follow a niellar oolicy tavern Wropean
loans in 1915-1916:

I should think that, as taiuga otund now, the 3tote

Department had "a botr o;7 the Gail", and that one of the first things the

Adminiotration would want to do would be to ro-examine the whole policy,
One thing, at

rith its various implications, and mup out a new course.

least, is cloer, namely, taunt if the dovermmeut is to continue its regula-

tion of foreign borrowings in the Amerionn mar4ot, it ought to secs up its
oven mind first au to the basis on which it is Going to act, and thee give

oleun-out and sfteotive administration of whatever policy is adopted,
seektn7 legislative authority for the purpose, if that should be thought
necessary.

AS for ::::rape and its borrowing, I am inclined to agree with you

that it is borrowing too much, and sometimes rather badly.

There is no

necessity, for example, for most of the loans to .:,erman :Mates and municipal-

ities, and it would be better if
loans to industry.

the

field were reserved 370r more productive

;hat it is easy to over-empnasise this point of view,

and a large share of the fault, at any rate, is at our and of the business.

Pert of tee responsibility rests with the -earl= bankers, many of whom
have been in reckless Gompotition with each other and whose representatives,
in coneeeuenoe, have been running wild all over Europe.

But a rather large

share, it seems to me, rests with our own Fationa 1 policy, whioh is gradually



forcing the rest of the world to borrow more and more from us.

with our

hi'4t tariff and our restrictive polioles with respeot to immigration and

other things we are making it inoreasingly difficult for other countries
to pay us in goods or services, and we have already got about all the
gold us can stand.

And at the same time, we are pressing our debtors

abroad to pay us, and are building up an enormous annual charge on the
foreign exohanges, for the service of the interallied debts snd other
obligations owing to us.

The rest of the world must find some way of

meetinc t%sse payments, and the ability of our market to take foral4n
seourities furnishes one of the chief moans of relief.

%Ten that, how-

ever, does not give any permanent answer, and 1 should sky there were a
good many diffioulties ahead if we continue too long on our present course.
Eincerely yours,

(SIGNED) Si PARKER GILBERT

Hon. Garrard L. Tinston,
Under Georotar7 of the ``reasury,
Troasury I:apartment.

Washington,
getlitirr




a.

THE AGENT GENERAL
FOR REPARATION PAYMENTS
rAt3rE NT GENERAL

:S PAIEMENTS DE REPARATIONS
BERLIN

LUISENSTRAS

I
I




tr

THE AGENT GENERAL
FOR REPARATION PAYMENTS




11BERLIN GENERAL
AGENT
33 LUIS EN STRASSE

DESTELEPHONE: Nouronr 119DE REPARATIONS
PAIEMENTS 0 0-11910

" " AMS A ""TREP. "ERA C K NOWLEDGED
PRIVATE.

NOV 1 6 1925

B. S.
My dear Governor:

In view of my letter of Oc

herewith for your information copies
(1) The text of the specimen letter

in advising bankers interested in Ge
response to my cable of October 16,

dated October 28th,which I have sent

whether this form of letter is still

ther letter of this date which I hav

no comment at all from the State Dep

not yet been time for a reply from 7

steady stream of inquiries from Amer

of whom give signs of acute bewilder

I think the State Departme
remarkable piece of work.
music, and

As Shep

is on such a high mora

pipe organ would do for the purpose.

S

Benjamin Strong, Esq.,
Governor, Federal 7leserve Bank,
33 Liberty Street,
New York, N. Y.
Encls.

1-) v

T. D.

.

13 -D.

coNFILJ7714k

O
EXTRACT FROM THE U. C. STATE DEPARTMENT LETisat TO 3AN1YES
IN CONNECTION

..".;17

17-TE FLOTATION OF GERMAN LOANS IN

71::.:1;

UNITED STATES.

Since the flotation of the German External Loan provided
(United States?) have
for by the Dawes Plan, offerings of German loans in the
than 150
aggregated, according to the information before this Department, more

million dollars, and it appears that a considerable volume of additional German
financing is now in contemplation.

In addition to the public offerings refer-

bank and
red to above, the Department is informed that a large amount of private
commercial credits has been extended to German interests during the past year.
In these circumstances, the Depc=rtment believes that Americam

bankers should examine with particular care all German financing that is brought
proceeds are to
to their attention, with a view to ascertaining whether the loan
directly or
be used for productive and self-supporting objects that will improve
in meetindirectly the economic condition of Germany and tend to aid that country

ing its financial obligations at home and abroad.

In this connection I feel that

AuthoriI should inform you that the Department is advised that the German Federal
placing of
ties themselves are not disposed to view with favour the indiscriminate
German loans in the American market, particularly when the borrowers are German

municipalities and the purposes are not productive.
Moreover, it cannot be said at this time that serious
complications in connection with interest and amortisation payments by German
and the
borrowers may not arise from possible future action by the Agent General

Transfer Committee.

While the Department of State does not wish to be under-

stood as passing upon the interpretation or application of the provisions




of fr,..;

-2-

IMP

Dawes Plan or upon their effect, if any, upon loans such as the one now under
consideration by you, it desires to point out that there is no clear indication of what the attitude of the Agent General and the Transfer Committee would
be towards such loans in the event of a scarcity of available foreign exchange
embarrassing their operations in effecting the transfers necessary to the execution of the Dawes Plan.

It seems to the Department, therefore, that before

issuing such loans you should inform yourselves whether the Transfer Committee wil
place any priorities or obstacles in the way of transferring funds for the payment of principal and interest, and that you should make clear to your clients
the full situation.

These risks, which obviously concern the investing public,
should, in the opinion of the Department, be cleared up by you before any action
is taken.

If they cannot be definitely eliminated, the Department believes that

you should consider whether you do not owe a duty to your prospective clients
fully to advise them of the situation.

While the foregoing considerations involve questions of
business risk, and while the Department does not in any case pass upon the merits
of foreign loans as business propositions, it is unwilling, in view of the uncertainties of the situation, to allow the matter to pass withoqt calling the
foregoing consideration to your attention.

In reply to your enquiry, however,

I beg to state that there appear to be no questions of Government policy involved
which would justify the Department in offering objection to the loan in question.




CABLE' o1,i

Berlin, October 28, 1925.

FOR TT?, SECRETtRY OF STATE:

Have received from Ambassador October 19th copy of your
telegram quoting specimen letter used by Department in addressing
bankers interested in German loans STOP

Should appreciate word as

to whether Department is still using this form of letter STOP Am receiving continued inquiries here from representatives of American
banking houses most of whom interpret Department's letter as designed
to discourage all German loans whether productive or unproductive STOP
Am replying to all inquiries that State Department has been informed
of Transfer Cornmittee's position and that position remains Unchanged.




GLL37_1-LiT

dIGEITT GMIER41.1.







-3-

whether the State Lepartment is giving similar lessons in foreign
investment and business practice in reply to inqairies about Polish
loans, or Csoollo-Laovak loans, or loans to any one of a doses other
foreign countries that oas ;nicht hmae.

There is a firstclass

chancu, fo oxauple, that the 2olish Government night .t some time
step is and forbid or

:sAnd the purchase of foreirn currencies for

the service of foreigu loans, and even that it micbt have to do this
ea a means of protocting Polish exchange,

This is a power that all

Governments bane and it is a risk inherent, theoretically at least,
is all foreign loans.

If the Delv:rtzent is not 1akin

similar re

marks about other foreign exchanges, I tAnk its lutter to the bankers




about German lo.ins id open to ver:,' serious question as being a plaid

discrimination against German bore

.

The .:hole performance gives me thl im7ression of a studied

effort at the )art of tee State repartmant to avoid the respoesiity
reuniting from its policy of regulating foreign loans
a hue and cry

Comnittee

by raising

in ti-thi case, about the :',ant ;eneral and the Trunsfer

In doine; this it fools nobody but itself, and it makes

its o:.n position mtelLible.

If continued, it may result in stopping

all German sorrowing in the United St%tes, rood as well an bad, so long
al t7 -a reparations problem continuos to exist.

Pornaps that is the

object, as it is certainly the tendenc, Of the advice which it is now
giving to bankers.

I ought to add one bit of informeton which may inttroat
you in this connection,

namely, that there has =v ox, yot been a

einrie inquiry from any but tmerican sources as to wiAat the Transfer Committee mi,H:ht do with the service of Gorman loans abroad.

This.

It seems to

is not without sit:nitioanoe, for HolLald,

and oven

w*o all more o: lets actively oxteadind credits and

!)aitserland

TIAking loans to Go-J.,:nw.

Cincerel; yourog

(SIGNED) S. PARKER GILBERT

Eon. Garrard 2, Aneten,
Under Seeretar7 of the Treasury,
Washington, D. C.

1 enc




6 53 23

J. P. MORGAN &
CABLE DEPARTMENT
9.09AL
Y OF CABLE

RECEIVED FROM

NEW YORK,

Oct. 31, 1925e

MORGAN. HARJES & CO.. PARIS

Strong from S. P. Gilbert.
Benjamin
Denkstein for
in83983.
Oct. 18th, have heard,
Referring to my letter of
hive recently been muds
Joint representations
formslly, that
proNew York bond houses,
State Department by
to the U. S.
letter about
terms of U. S. State Department
testing against
confidential word,
Should very much apprecifite
German loans.
and, if so, whether it has
whether this is true
by cable,
should be much
If written protest made,
brought any results.
Have already
if available.
having copy by mail,
interested in
morning'
written you further this




c

THE AGENT GENERAL

(

L AGENT GENERAL

R PilrARATION PAYMENTS

DES PAIEMENTS DE REPARATIONS

BERLI N

PARIS
18 RUE DE TILSITT

33 LU1SENSTRASSE
TELEPHONE: NORDBN 11900.11910
TELEGRAMS : AGENTREP. HEIM IN

TELEPHONE: WAG R A.2.4 2122-2123
TEL EGRANLMES: REPA GE NT. PARIS

PERSONAL AND CONFIDENTIAL.

BERLIN,

November 4, 1925.

Ny dear Governor:

On the chance that you may not have seen them personally, I

am enclosing herewith two pages from the October 20, 1925, issue of our
Credit & Financial Summary, dealing with the depreciation of the Goldmark
as compared with the reichsmark.

It seems to be due largely t

prescribed in the London Agreement for calculating the value of the Goldmark.

This makes the Berlin quotation of sterling the main factor in de-

termining the value of the Goldmark, and under present conditions it leads
to rather weird results.

It means, among other things, that there is a

fairly substantial loss to the creditor governments on each payment I get

from the German Government, since I am bound, under present conditions
at least, to accept the reichsmarks at a premium of nearly

of 1 per cent.

As you will see, this means a considerable loss on a payment of 50,000,000
or 100,000,000 marks.

I do not myself see much escape from this anomalous situation at

present, but if anything occurs to you, I should appreciate it if you would
let me know.

I have thought that possibly something might be done in Lon-

don, and with that in mind I have written rather fully to Governor Norman,
explaining the situation to him.

I have just had a letter from him saying

that for the present at least he sees no way of doing anything to
correct the situation.




The present state of affairs suggests one broader problem which

-2-

seems to me has not yet had enough attention.

Schacht, as you know,

still keeps the reichsmark pegged to the dollar, at a fixed rate of
4.20 to the dollar, and he maintains this rate by being willing, on the
one hand, to buy dollars for reichsmarks at the fixed rate, and, on the
other hand, to sell dollars for reichsmarks at the same rate.

This ob-

viously creates an artificial situation, and I think its continuance is
a source of danger.

It probably accounts for some of the difficulties

which Schacht has already had with his devisen, and it must be an appreciable factor in determining the flow of foreign money in and out of Germany.

There may be reasons why Schacht fee1s that he may have to con-

tinue this artificial status for sometime longer, but I should think it

would greatly strengthen the Reichsbank's position, and in the long run
greatly support the stability of the currency and exchange, to let the
dollar rate fluctuate "between the gold points" in accordance with what
would be the normal condition of the exchanges.
It may very well be that until the public funds situation has
been cleared up, and Schacht has brought them unequivocally under his control, it would be unwise, and perhaps even impossible, to take such a step.
But I should think the possibility of taking it ought to figure rather more
in his calculations than it apparently has up to this time.
Sincerely yours,

Benjamin Strong, Esq.,
33, Liberty Street,
New York, N. Y.
Eno.




w

0

- 7 -

DEPRECIATION OF THE GOLD MAR.
The gold mark is now at a discount to the reichsmark of nearly one-

dr of 1 per cent.

This is of material importance because under the

:rms of the London Agreement all payments made by Germany in accordance

ith the Experts? Plan are paid to the Agent General in gold marks, "or
heir equivalent in German currency".

Inasmuch as the gold mark is a

Lypot netical currency, payments are actually made in reichsmarks.

The reason for the present depreciation is attributable to the
,thoOs of calculation prescribed in the London Agreement,

There are two

lements; first, the price of gold in London; and, second, the rate for
terling on the Berlin Stock Exchange.

Since the return of Great Britain

o the gold standard the price of gold in the London market except for
hart intervals during the summer has been at the practical equivalent of

he Bank of England statutory selling rate per ounce of fine gold, namely
4s_11 1/2d, as is reflected in diagram I on the next page.

The main factor, however, in determining the value of the gold mark
der present conditions is the Berlin quotation of sterling.

As will be

)served by comparing diagrams II and III, the Berlin-London rate moves

Ty closely with the London-New York rate, owing to the fixed relation
A,ween the reichsmark and the dollar,

Since the early part of May the depreciation of the gold mark from
Le reichsmark, as illustrated in diagram IV, compares closely with the

Treciation of sterling in terms both of the reichsmark and the dollar.
will be observed, however, that during July and August when sterling
s slightly above parity with the Bank of England selling rates the
ld mark suffered correspondingly, reflecting both the fall in the price
gold and the depreciation of sterling iri the exchanges.




- a -

Elements in the Value of the Gold mark.
PER CENT

I.
,

.

.

.

.

'

(PARITY)
-.

..40.0.--...............

NDEPRECIA'-'ION OF THE £ STERL NG
FROM GOLD PARITY - LONDON.

.

.

(1925)
.

.

.

MAR.

FEB.

JAL.

MAY

APR.

.

.

JUL.

JUN.

SEP.

AUG.

OCT.

q

.

1PARITYj
--

---

::'::L=--:-::--

-

DEPRECIATION OF THE £ STERLING
FROM PARITY WITH REICHSMARK
BERLIN.
(1925)
.

.

i

1

JAN.

FEB.

MAR.




APR.

MAY

I

t

JUN.

JUL.

i

AUG'.

_

SEP.

___

OCT,

________
l'AI.ITY.____________

JAN.. FEB.

MAR.

APR.

MA

-----APPRCIATION-->+---

(PARITY)

JAN. FEB.

MAR.

APR.

MAY

THE AGENT GENERAL
FOR REPARATION PAYMENTS

DES PAIEMENTS DE REPARATIONS

BERLIN
33 LU1SENSTDAESE

PARIS
8 RUE DE TILSITT

al TELEPHONE: NORDEN 11900-11910

11 AGENT GENERAL

TELEPHONE: WAGS/AM 21.22 -21.23

TisLEGHAns:AGENTREP. BERLIN

TELEGRAMMECS: RHPAGH NT. PARIS

BERLIN

NoveMber 5, 1925.

PERSONAL AND CONFIDENTIAL

Ly dear Governor:

I have just received, through Morgan, Harjes & Co.,

your message of November 3, 1925, with respect to the letter
which the State Department is using in connection with German
loans.

Under the same date I received a cablegram from the

State Department stating that it was still using the same form
of letter.

I am glad to see from your cablegram, however, that

some progress is being made, and that it is taking the form of
controlling the matter more effectively through the German authorities.

The Beratungstelle, by the way, is already exercising a

fairly good control, and I am enclosing herewith, for your information, a copy of a report given by its Chairman to the Chancellor,

under date of October 12, 1925, summarizing the situation up to that
date.

On the question of the State Department's attitude, I

received yesterday a letter dated October 15, 1925, from Garrard
Winston, which seems to me in many ways the most amazing exhibit of
all.

I am replying to it today, and am enclosing herewith for your

confidential information a copy both of Winston's letter and of my
reply.

I have not sent any comment to the State Department itself,

as it never does much good to suggest to the Department that it may
possibly be wrong.




0
Ilk




For the moment, the practical effect of the State
Department's letter is probably not particularly bad, for it

may throw cold water on a lot of State and municipal loans that
had better not be made anyway.

But the real test of the position

is goinc,, to come in the case of some really productive industrial

or argicultural loan, and then, it seems to me, the State DepLrt-

ment will have to climb down from its present position and either
drop the matter entirely or else write a sensible letter.
Sincerely yours,
(::77

L#44/4-4-Benjamin Strong, Esq.,
Governor, Federal Reserve Bank,
New York, N. Y.
3 encs.

lob

a
November 5, 1W5.

=Mk
Dear larvaris
I received your letter of October 15, 197.14 sad thank

yes for sending M &espy of the sample letter which the

tats

Departomut is vow fronting out to beaker* intoseetod in Gorman LOMA,.

1 bad already resolved a copy of this letter by cablegram, and have

written you rather tolls bow I fool about the whole business in
two letters doted Ootiber le, 1926 sea Oetsber 29, 19211.

I as

surprised, sad 'casaba% tieappoiatot, to hoar that the ntate

torport -

seat's letter is was that hat been adopted by 14eors.
sat glover, mad approved by the President, but I think it
lemaias an impossible letter, and that the position it takes is both

Whrt-sighted as

ill-advised.

I think you recognise this yourself in your letter of Osto

bor lb, 1924 when you say that you cost**, you do not bow whore
you "vine to drug the Ilse caned it owes to Gerzaa industrial or
are

ram loans."

his gees to the moot or the 'hatter, for the doubts

which the Auto Disportment says to the bankers gnat be "clouted up"

by Was before any net on is takes, are doubts *doh each apply to
gOsuion industrial sat agricultural loans quit3asommams to State

ommioipal loans

/base doubts, sorsover, it grossed la the spirit

that the amt. :Alpartmen$ ODOM to have .adopted, will teal to (dead*










uell.

In actual praotioe I abevid have thoucht that it could

have been quite effectively suppLealmeted by tc:e informal co-

operation of Amerioaa bankers mad tee efforts of the German au
thorities theLlselves.

For t')e moment the practic:11 effect even of the present

3tate 7.eportment letter may not be bad, for it may discourage or

prevent the issue of many State aid municipal lo.na thct hod better
not be made an7ally.

To some extent these loins have even been

operatiag to weaken the Reichsbades control over credit, awl it was
on this accoa-A tho.t I cabled Qates Medebbah, as a director of the

Reichsbank, so as to bring this aspect of the situation to his attention.

I should have been Woo last to suggest, beserer, that the

State :apartment v.tteppt to meet this special situatiou by raising a

general issue about the attitude of the Transfer Committee.

?or

one thing, I here h d to naiad about half of my than for a manth
answeriar perfectly unnecessary inruiries inspired by thn Asti, De.*
p:.:rtment's letter, on a question watch I

supposed had been appreciated

from the beginning.

:1 far as the Transfer Committee's position is concarned, I

had anted that as fully and frankly as I could in a personal latter
that I seat to 1,:r. :!ellon last 14oember ant;_ -::Erich I presume you bare
seen.

This was necessarily A personal r:ad unofficial communication.

but I thou -tt it would rive yea all a sufficiently olear picture of the
problem.




&s for the prtztioal position of the Committee in dealing

41,

with bankers interested in Geroan loiins, I think Ir. oterrett has
stated that underwell is aOetober which he wrote to the Alit' Delpartmeut very &AO of letter U. 1025.
You may alroady have

seen it, but I am miaowing a Copy of it hsrewith, in say event,
to complats your files.

think all of yes is

there is one thLor, by the my, that I

weiadasloss

toad to fOrgelt, Shmoly, that this

Transfer Oseolttoe is not composed Melly of Miriams and is not
en Amorioes temoittee.

It 1$ an intorautiOaal be4, tessAllY

&rented by Treaty between taro Allied mad Oerann Governments, end

apart Iron the two Amerloan embers it insluaes an iniflishmso, a
2renohnoa, sa Italian sod a Belgian, all of whom are independent
and responsible people aod several of whom are banksrs with rids

Satorastisatil

ospestenoo.

I should set say that any of tam were swab impressed
by the ;:team Dephotment letter.

And I should not be earprisod

if some of tbAMM, at least, were interested to ese that at the sane
time that our Uoveranent seems to be following s viers rostrietive
po=loy, the Chanoeller Of the limbo:Am in :1)oglaid is announcing

rho removal or the embargo on the flotation of foreign /OARS in the
Lon...on m.,rzet.

sx, uulon intursdted in what you soy 814MA the Reithomark

credits which are being hel4 for account of the United states thwermont,
though I haps you ore not going to propose 4siar thou to pay Off the

German private owners of property still held by WI allon Property




eik

r'aqtodian.

That Is still Smether geeetion.

Bet the reionam,

4redits with the It General de bet carry interest for
say Of the pewere, and I do not see any posaibiaty of giving

yea interest upon them.
Sinclercily yours,

(SIGNED) S. PARKER G1LBERi

Hon. Garrard. D. Clinton,
Undo. 3eeretary of the Treasury,

Waaninsien, D. 0

taise/tIC




w
C 0 ? Y

(N.
CETDFMECRit1TIIRY OF TIE TRUSURY
Washington
Octob ©r 15, 1925.

Dear Parkers

I wrote you that there might be some obange in our policy
in dealing with the foreign loan situation, particularly the German
financing.

I enclose for your confidential information a form of letter

which has been adopted by Lessrs. Mellon, Kellogg, and Hoover, and approved by the President.

We have finally dons what is the proper thilv,

that is, to pass the buck to the bankers in a way they cannot avoid.

I

confess that if I were attorney for Speyer and Company, I wouldn't let
them offer the bonds without publishing a pretty clear statement of the

business risks, and, of course, if they published such a statement they
would never sell the bonds.
I had the opportunity of seeing your cablegram to Gates
LcGarrah on this situation.
be helpful to you.

It appears that our particular action may

I confess, however, I do not know where we are go-

ing to draw tho line when it comas to German industr al or fare loans.

You may wish to lot me have your views on this entire subject.

I appreciate what you have to say about =Wing arrangements
to withdraw the American mark balances now on deposit with you.

We are

trying, however, to come to owe understanding of the disposition of alien
German property.




Since this decision may have an effect on the disposition




101BAECE 1. IN IL-; Ti

U

THE HMI CH

CHAILt,AAN

OF THE
A.OVI6UAT BOARD FOR FOREIGN

Berlin, October 12, 19.5.

V o 15951

Minicterifurat Eorden,

FRO
iTO:

the 6ecret_ry of State in the Chancery of the Teich, Berlin.

In the course of the discussf.on with the Premiers of the
Federal

the Reich
ChAnoery of the aeich on October 2, 1925, the

President of the aeichsbank spoke on the lack of discretion
observed by the Commun.es in the contracting of foreign loans

difficulties in the wa of intervention by the
authorities of the aeich in the matters in t is connr ction,
and

the

on a b.,.sis of provisional e,.:ti:.lates, he mentioned that, of
al: the loan propos .18 submitted to it for approval up. to the
msentIthe &dvisory Board for Poreign Credits had given its
conlient

to

,i-out 85 per cent of

Lilt.: applications made.

Ale President of axe Z.-ehtibank h ,d no data at his disposnl
regarding the compolAtion 01 1,fie awourlt approved and the

proportion of th.it amount actually iL>:.;uedt

no further details.

he accordingly g,:.ve

I therefore think that further

infornat:Ion on these points will be desired -and would first
point out th-t the approved ...nount does liot only include the
up to the present the Advisory
--- 1 o ills of Co ones=



4
Board has considered in almost equal pr000rtions the loans
of the

Coimanes on the one hand and those of the States

and of a6rieultural sold industrial undertakings on the
under the 'Iogulations to

other hind, 411oh were subject
its approval.

The loan proposals up to the present submitted to
the Advisory Bo,xd total approximatoly 690 million marks,
and of these about 581 million itiAqrs (or 84 per cent) have
been approved.

This amount includes:

acirioultural loans

(Rentenbank Credit Institution
a:Id Bavarian agrioultural
Cooperativos 6uaranteed by the
Bavarian State)
b)

industrial loans of undertakings
run or guaranteed by the State
(Badenwerk, Faoheische Works,
99

Rhein-Vain-Donau s. G.)
c)

115 million marks

Loan* of the Federal States

1L6
340 million marks

Total

This loaves applications from the Communes for
350 million marks and an approved total of 241 million
marks.

The proportion in trio oaso of Communal loans is

thus 60 per cent.
Of the loans approved (Jo..iraunal and other loans)

to the amount of 581 million

in all, loataa to the

amount of only 466 million marks !.ive been issued:
figure includes the options reserved.
Narks aro distributed as follows:




this

The 466 million

e
a) agricultaval loans (as _hove)
b) industrial loans CAB ,bove,
excluding Badenwerk)
0) loans of the Flideral St.tes
(as above)
total

115 million maks
88

m:rks

126 u.illion m,rke

3-9 million n.rke.

iii:: leaves only 1.J7 million L.rks, or 39 per cent of the
loans proposed by tIle 0o.munes, for loar.L.,

ctually placed

on the market, th t is, brely 20 per cent of the total
sub 'fitted for ,pproval by the Bo:rd.
I kziould be glad if you wovld bring thi: letter t.7, the

notice of the 0h,.ncellor of the leich after his return and would
at th.L sate ti:ae submit to him the erllosed statement.
The President of the Reichsbank and the ,..inister of the

Reich for Economic Affuirs have received copies of
letter.

(Signed)

Pro .t:

Ger!:.an

rransloted -BTS
Checked - aB




NOHDEW

this

W.T. 11.1 50M 1-ES

WIRE TRANSFER

FEDERAL "ERNE BANK
RK

DIVISION

TELEGRAM
COMMERCIAL WIRE-INCOMING

ATTENTION

TRANSLATION COPY

DECODED
CHECKED
COMPANY

79P0 PF 25 LOUISVILLE KY DEC 28 1925
BENJAMIN STRONG.,---

MANY THANKS FOR LETTER AM GOING TO WASHINGTON

VIA CHICAGO AND WILL AftRIVE WASHIROON_RIURSDAY
MORNING AT NINE OCLOCK HOPING TO SEE YOU FOTH THERE.




PARKER GILBERT. 510PM

THE AGENT GENERAL
R REPARATION PAYMENTS

I: AGENT GENII:RAI,

DES PAYMENTS DE REPARATIONS

BERLIN

33 LUIS EN ST RASSE.

t

PARIS
8 RUE DE TILSITT

TELEPHONE: WAGRAM 2122-2L23

TELEPHONE: NORDEN 11900.11910
TELEGRAM:Ix : AGENTREP. BERLIN

TEL EGRAMMES: R EPAG IR NT. PARIS

Washington, D. C.,
January 5, 1926.

My dear Governor:

I have your letter of January 4, 1926, with the enclosed
copy of Morgan's letter of December 19th, with further reference to
the envelopes from my Berlin office which came to you with their seals
broken.

I have also received a copy of the letter from Fraser to

which Morgan refers.
I should not be surprised if the principal trouble were with
the envelopes themselves, and I an satisfied that the thing to do is
to substitute an entirely new line of envelopes.

This seems to be a

matter of greater difficulty in Europe than one would suppose, and I
am accordingly inclined to try to get a stock over here before I return.

Our first experience in Berlin was that all the envelopes were

too thin, and nearly always arrived completely torn to pieces, while

the ones now in use seem to be so thick that most of the envelopes open
themselves while in transit.

With a view to getting a supply of the

right kind of envelopes I am looking over some samples here, and when
I get back to New York I should like to go into the matter also with
your people.

I could then go ahead and place an order immediately.

I am sending a short cablegram to Berlin to this effect, in
order that the office there may be informed.




I am not, of course,

- 2

saying anything to the State Department about the condition in which
the envelope in question arrived.

The chances are that it was not the

fault of the State Department, ani I see nothing to gain by mentioning
it anyway.

Sincerely yours,

Benjamin Strong, Esq.,
Governor, Federal Reserve Bank,
33 Liberty Street,
New York, N. Y.




IITHE AGENT GENERAL

Oil REPARATION

PAYMENTS

L AGENT GENERAL
DES PAIEMENTS DE REPARATIONS

BERLIN
33 LUIS EN ST RASSE

PARIS
18 RUE DE TILSITT

TELEPHONE: NORDEN 1190011910
TELEORAns : ADENTREA. BERLIN




TIILEPHONE: WAGR A1.1 2 1.22-2123

TELEGRAMMES: REPAGE NT. PARIS

BERLIN,

February 26, 1926.

ry dear Governor:
I have just sent to Winston a rather long letter

dated February 23, 1926, on the question of the plans for
dealing with the German property in the United States, and,
incidentally, on the question of the American share in the
Annuities under the Experts' Plan.

I am sending a copy of

it to you herewith, in the thought that you will be interested to have it, particularly in view of the conversations
which we had on these subjects in New York.
Faithfully yours,

Benjamin Strong, Esq.,
Governor, Federal Reserve Bank,
New York, N. Y.
1 eno.

Berlin, February 23, 1926.

Dear Garrards

1 am sorry to have had to leave without seeing you again.

I had

hoped to have at least a good talk over the telephone from New York but, as
it tarnnd out, the list three or four days Imre frightfully crowded with
appointments, ead 1 did not even succeed in finding enough time at the Federal
:weary° eadk to get 7:ashinrton on the telephone.

is matter of fact, 1 think that our conversetione at Washincton

had covered almost everything of imporEnce that was on my mind, except perhaps some further observations in connection with the plans for dealing with
the German property in the United ::tates, and indirectly on the question of

the American share in the annuities under the axpert ?len.

On the very day

that I left Naehington I spent some time with Secretary i:ellogg at his house

and hed a long talk with him and Leland Harrison on the
icee ehure.

uestion of the :eller-

I gave you the substaece of this conversation over the telephone

before leaving 4ashington, and I assume that you have since had the story in
Aetail from Leland Harrison.

I emphasized particularly the importance from

every point of view of taking practical steps to realise on the American shuns
withoet farther delay, and reiterated the suggestion that this could best be
done ey means of three-cornered arrangements with American importers and
German exporters, wider which the American importers would settle in dollars
with the Treasury and 1 would pity the German exporters In reichamarks out of
the .emerican share in the .nneity.

nmarl

This ,:muld assimilate the transactions as

as possible to the prose.: are for deliveries in kind and would raise




a
the leaet difficulties from the point of view of the Transfer Committee as

well as from the standpoiut of the other powers.

I understood that both

Secretary Kellogg' and Leland Harrison agreed., am that the State Department

would immediately institute negotiations thrown the proper channels.

I

have not heerd as yet whether anything definite has been done alone these
lines, but I hope that somethiag is actually ender way.
Ou the question of time, I said to Secretary Eollogg that it seemed
to me importaat to prooeed with realising on the American share without waiting for the development of the plans for dealing with °armee property in the
United etates.

I pointed out, first of all, the general desirability of go-

ink! ahead without any further delay, in vie of the difficulties that might
arise with the ether lf,owers in connection with the distribution of the Annui-

ties, snd particularly if there should be any suspension or reauotion of
transfors.

I helve already emphasized the importance of these considerations

In my earlier letters to you.

in so far as the plan for dealing with the

German property in the United ,Antes is concerned, it could do no possible

harm end mieht even de much good to have the American share actually in proC035 of realization.

It would provide some cash, in dollars, to put the plan

in motion, and it oueht to help with ecerress.

Then, too, fro- the point of

view of negotiations with the Germans, the very fact that the question of
returning the German property is still pending manifestly puts real pressure
On them to facilitate in every way the practical realization of the leserican
share.

It oucct to be obvious to thi Germans that there is little or no

ehnce of gettiug tools property back unless Germany on its part does everee.
thing poesiblo to help the United .3tates in realising ou its share in the
inenities.

we IlL,Jrican share is relatively small, and I have always thought




4
that with the right kind of pressure tne Germans could complete arrange-

ments on a week's notice that would enable us to get full realization on
it by matins of three-cornered transactions with American importers and
German exporters.

Chore is always the possibility hlso that Congress will

take some time to seetle the question of returning the German property, and
it eeuld be unfortunate from every point of view to lot the question of
realizing on the American share remain indefinitely in suspense.
In so far as th

te-actical arrangements are concerned, I should

think that the section of Investeents, which has boon organized under Hand's

general supervision woula be well equipped to handle the word of dealing
with the American importers and of keeping the necessary accounts.

Once

started, this work ought not to present any special difficulties.

Altogether, I should be inclined to pet all the emphasis now on
getting a realization of the American snare, and to be rather philosophical

about any delays there may be in getting Congress to uct on the question of
th; German property in the :halted States.

I have always felt strongly that

the German property of ht to be returned, and returned in full, and I am
still strongly of the sane opinion,

On the other bond, it will not do any

harm for the Germans to wait a little while longer, awl to give practical
evidence in the meantime of their viellingaess to carry out in good faith

their obligations under the experts' Plan.

I do not mean to

mane has not beer& carrying out the Plan faitafelly up to this time, or that

I em expecting any default in the near future.

but it is characteristic,

of the Germans to take a great deal for granted, and I think that on this
iliac Property question their tendency is to be very ouch "on the make".




-4..
I oven hear a certain amount of conversation in Oorman circles to the

effect that the United Otates "mot,/ act with reference to their property
beforo the end of the present session of Congress and that there woul0 be
very had feeling between the two countries if it doos not:'

time the German newspapers ara full Of talk, almost Inanely from Nationalist
sources, about the "intolerable burden" of tha 5:sports' ?Ian and Olt inabil-

Thin talk Is more or

it, of Uarmalv to perform hur obligations under it.

less irresponsible, .1.nS is largely for the purposes of doThstic politics,
but it has boon going on atu.L i sai40av that it :Jas

printed in tr

mov.: or loos re-

United ::tastes, as in othi.q countrLs.

The attitude of the

Gerwa C;overmaant itoelf has oven correct allow*, but f think it might hare
quite a healthy affect if its ropresentatives in Isieltington, wno aro so
much interested in setting the Merman prop:art:: returned, were told that tnere

woolo naturally bo soma oalay in getting tho nacsory legislation through
Congress, even after a plan is agreed Loon, an.), th,t the kind of talk which
Las be

coming out of i;orm!.ay during the past couple of months is not cal-

culated to facilitate the actOptiOn of tie plan

ia al nest cert'in to =Am

additional difficulties in 0o4gress, orhaps to the xztont of naking the
whole question for some time to come,

think the reaction hers

oatlii be

lasediate, and taut it would lielp in getting the vestion of the Asorican
Share satisfactorily settled,

Passing to Lae question of the return of tNa Cern= property in
the United :Antos, i ansums ttiA too plan thtlt wEe announced in Eovember will
be un4ergoing revision alonc. the lines of the conversations that I had with
you and 7.:r, Kellong :,.no




that it

be late 7orell or atirly tpril before it

4
begins to taios definite shape again.

I hope very each

it.vill be poss-

sad tf_t the
ible to get away entirely from ano Issas of guaranteed bonds,
to tAllo care of the
tax receipts in Liarch will indicate a sufficient surplus
133110.
antariCam claimants without raising the question of a bozo

In this

problem if
connection, it occurs to ma that it would greatly simplify your

rican claimants from the
you could separate the 4uostion of paying tee .Am'

raping all of
question of compensation to tho Geri aa shipowners, instead of
them together as was Done In the origins, plan.
German
There ought to zee a distinction, it sown to :ze, boteose the
tha German ships
property in the hands of tho Alien ?roperty Custodian sn,1

and radio stations that were ooized by the United States.

As-I onderetand it,

have been kept by the
the seized ships rind possibly the radio statious might
to the
United :hates as prizes Of war without any question of compeneetion

cowsieerations of
German owners, and they do not, therefore, present the sa...o
,e.lestion of returning
respect for privato property that .1.(11 involved in the

the German property held by the Alien Property Custodian.

If this is true,

twro problems were separated, and
it would simplify the whole situation if th:.,

treated ae a
the question of compense.tion for the ships and radio otations
problem by itself.

The Gormao proporty in the heads of the Custodian does

raise tho VestiOn of respect for private property on land.

This is a -prin-

particak.rly iu view
oiple of the gr-test impertnnce to the United Status,
of our own position as a creditor nation.

It is of fuuilamental ivortnce,

keep
therefore, to return thie property unequivocally, :And it would not uo to

2xporte Plan in oxtho property and make the Gormans tz;ko marks out of the
ohonge for it.
seised ships and



the
As I see it, however, there is not this difficulty with

stations.

The United Staten is zest making any prat:nee




.7..

0
.almost half has already elapsed, so that you could figure in terns of having 110 million geldmarke available under the i,:apertei ?len within another

year ana a half.

in the fourth and fifth Annuity years the American enure

would becquae mneahat larger, as the Annuity itself increases in size, :2.:nd

it woult; only be a matter of waiting fur the end cf the fifth year, or per-

haps the early part of the sixth year, before t.t3 whole mount necasearj to

cover the seised ships and radio stations woulu be made available for payment
in vie. of all the circemstunces, this would cwt be

to the derma-a owners.

an unreasonably

time to expeot them to viait, aid I do not bolls", that

you would have aey serious difficulty in gettini.z them to uccept such a sprawl.-

int; of WO payments.

Among other things, the dermans aro not is a good posi-

tion to object to the delay, for the very reason for spreading tne payments
is to edjust tner. to the dermaa payments undor tua E,;xperts' aan.

And I

should riot be surprised if it hero the Caruau 4overament rather tilan the

shipowners who did soma of the waiting.

Zee shipowners, in fact, have al-

rady had rather large acivanoes frets: the Gtfvernmeat for thipbuildinc purposes,

and some Of LDOAO, at least, may have to be ruptild out of any compensation

received from America.

As 1 unaerstaud it, moreover, tau shipowners aro

likely to put whatever fends they get into new construction,

their Own

expenditures for this purpose will naturhlly be made chiefly in reichsmarke
and will ;Aso be spree 4 war u considerable ;Arial..

it is difficult to get preciae inforsiatAn hare as to the status
of the +shipowners, but Were are 3046 pretty good pr.:otical cheoms on the
situation.

I caw jr. aesselbwoh in ausdiagton, for example, aad questiOned

him quite specifically about the ships and radio stations.

I was interested

.o find that he admitted, more or less rOlUOtuUt17, tnat there ought to be




"""1
44100 ulfficalty in settling these claims in reichsmarks.

As bearing on the

expectations of tee shipowners, it 13 also interesting to nee tun course

waled the stooks of the two principal shipping companios have taken on the
Berlin Stock :ache

e.

The quotations for both the Hamburr-Amerike and

Norte Gorman eloyd have goae up About 100 per cent :eines the plan was aneounced /set Ioveeber, ea against a relativele email Increase in t!:,a averege

of eecarity pricee.

this more fully eepeare from the enclosed teele; end

there is not the slightest doubt teat most of the increase in the shipping
shares is eat, to tee enticleation of unexpectedly large compensation from
emerice.

eettletent for the seised ships and radio stations in reichemarke

Over a period of years has the additional advantage of raising no uifficulty
or trattefer, an

t

uo not pee teat there woule es any possible objeotion to

it from :tither the Transfer Coe:lite). or the other Governments.
Assuming tbat the ships and rail 10 :3tatiOns oould be to ea Oars Of

on some such basis, there could, of costae, reeain the question of the emericee
oleims.

it

these claims, of course, taere cannot help but be the problem

Of transfer, es tare is no secinpe from paeine them in dollars Lied if the
Ieerteue property in tie basdui or the uustooian 16 to ba ret-araed, the only way

of getting the dollars from Germany is by means of the experts' elan.

This

will tees a conoidernolci time, at bast, and varticulariy so it the American

share of the Annuities under to

21an war, to bo used for the first five years

or so, in paying for the seized ships and raaio stations.

The Oni

pOssible

was of financing payments to the American claimanta in the meantime la by
urine oath out of ;he United Gtetes Treasury or by using the credit of the
United States, in L




form of an issue of beads.

The moot eireot way, of

-9-

e.oe, would be to speed cash out of the Treasury, under a eaeolul appre-

riation from Conarees, and for the Treasury Cam to reimburse itself in
course of years out of tho reoeipts subsialently aecruine le it under
1a :eaerte' ?lea.

I hAve the impression that even with the new tax bill

Oas probabilities are that for the current fiscal year the Treasury will

shoe a surplus of soeoteing over le° million dollars.

if this should prove

to be the case, it maid be possible to pa.: i2aectioally all of tee:

claims test

morican

be presented this year without ranniag the dialaer of shwa

int?: any deficit in the year's accOunte.

Coneress, I suppose, to makine
that even Senator

?her*

ould be some objection in

n appropriation for

purpeas. &Ana I UOt100

ocui, of iesausylvaaia, has been talking in terae of being

unwillin evor to anpropriate money out of the United Zitates '%reasury for
paeiue claims avainet aermaey arisine out of ttio sinking of the "Lueitania".
But as between paying the Amerioan elaiaants eider an appropriation Lead

the credits of the United States throeah aa issue of evara teed bones, I should
think that Conarees would prefer to make the appropriation, cud it would corm
teialy be better practice free tks point of view of the Treasury.

It is also

to bo remembered, aue could very well be pointed out to ::o4gress, that, after

all, the Wilted a.atss ees aotually got

swami ships red radao ettions,

ane is either usine them or hes dieposed of team for Its owl pareosee.

'70

tviseatent, tnerefore, our eoperaa'at is already in thn position of having
eeesived value, aud miaht pereactly well expect to have to make an appropriaa
tion for the paeeeete to ee wade to the Ovincre of the seised shipe .::nu radi0
u
stetioee.

The fact that til a approprietion

,:3'xfatt for tea purpose of paying

the aterioen claimants instead of for the part:pee of paying for the ahipe end

male stations moans simply that there is, in effect, an adjuetmont between




-10the two a000unts for the sake of reducing, :Is far as possible, tiro trans-

fer difficulty.
This letter is alread:; too long, and there would be no point anyway
in ceing into farther detail unless t- d. until your plans are in more definite
shrrpe.

but I hope that these suggestions pill be of some use, rut that when

you do get to the point of drwiing up a revisad plan you will give me an op-

portunity to look it over before it is anounced to see whether it is all
right from the point of view of the Trhnsfor Gommittee.
With best retards, I au.,
:sincerely yours

(signed)

Garrard b. :iinston,

Under Secretary of the Treasury,
finalize:ton, 7. Co
.1:11Ole
SPG/ia.Y.




GI1.312T

SerlIn

54001c &wawa Prices
.1.1IIMIN410.0

.)ate

X004dantachor
Lloyd

,ipproximately the
middle Of
11,

eselloveimmmarMON40 D.alsoN

601101' Si 121:

mo.....
(157 &urea)
67.3

OS

7460

st

69.2

On October Z.) public announcement Ins made 1n Germaay of the
propos& to relMburos owners of Gorman property sognostrated
Oaring the war by wane of pampa part in cash mei pert in

lzated States Banda.
'PO

--:friombor 1925
e emb
jantr.4ry

62.0

"

99

1926

64.1
95.1

; Amax' 37




(146 niaaroe)

......w.D011M01.40111.01111114MPOI0.10.*

Letter from Mr.Parker Gilbert

-

30th April, 1926.

I am leaving Berlin on Sunday, May 2nd, to spend a

couple of weeks at my Paris office, winding up with meetings
of the Co-ordinating Board on May 14th and of the Transfer
Committee on May 15th, both in Paris.

I could quite easily

come over to London for a few days shortly before the 14th,

or shortly after the 15th, if either of those times would be
convenient for you.

Schacht I know will be with you the first

part of next week, and I assume that Strong will be in London
for perhaps a couple of weeks, so that your time is likely to
be fully occupied, but if you do have a little free time and
will drop me a line to Paris indicating what would be the best
time,




I shall be glad to make my plans accordingly.

r

THE AGENT GENERAL
FOR REPARATION PAYMENT S

L AGENT GENERAL
IPDES PATE MENT S DE: REPARATIONS
PARIS
18 RUE DE TILSITT

BERLIN
35 LUIS ENSTRASSE

TELEPHONE: WAG RAIN 2122-21.23
TEL EGRAI114135: REPAVE NT. PARIS

TELEPHONE: NORDIC,/ 11900-11910
TE 1 . 11 GR ANS : A.GENTRE.P. BERLIN

PERSONAL AND CONFIDENTIAL.

Paris, May 8, 1926.

My dear Governor:

I received your letter of April 20, 1926, and am glad that
you are now on this side of the water.

There are many things to talk

about, including one special matter that I want very much to see you
about.

Perhaps it may even be a good time to get started on plans for

stabilization.

I had been hoping to come over to London next week, to see

Norman and the people at the Treasury, and had thought that this might
also give an opportunity for some good talks with you.

There seems

to be no point in coming to London, however, in the midst of a general
strike, and I am planning accordingly to return direct to Berlin from
Paris.

I gather from your letter that you may be coming to Paris

around the middle of May, and I hope very much that this is still your
plan.

I have meetings of the Co-ordinating Board and the Transfer

Committee in Paris on the 14th and 15th of May, and will be her
least through. the 15th.

It

I can readily enough stay a few days longer

if there is a chance of seeing you here, and if you will let me know
what your movements are likely to be I shall try to adjust my plans
accordingly.




As for Berlin, I am almost sure to be there for practically




- 2

REPARATION
THE AGENT GENERAL FOR

PA7l.,731ENTS
PARIS

l8 R.CE DE TILSITT
21122-21.23
TISLEPIIONE'; %vitt:RAM
PAO E NT, PARIS
TELISCRAIMS: RE

BE RLIN
s.

ENS TRANS E
I1000-1119110

TELEPHONE:NORDEN
AGENTHEP, BERLIN
TELEOHALss:




-eivrre Tyr"(

Paris, June 19, 1926.

Yy dear Governor:
I am enclosing

that
herewith, in the thought

farm, an advance
to have it in this
it may interest you
of the
Report on the operation
copy of the interim
today to the Reparation
I am presenting
Plan which
Experts'
Commiss ion.

Sincerely yours,

Inc 1.

Strong,
Governor Benjamin
Hotel Cap d'Antibes,
France.
Cap d'Antibes,

TIIE AGENT GENERAL

L AGENT GCNtRAL

LbwOR REPARATION PAYMENTS

DES PAIEMENTS DE REPARATIONS

BERLIN
35 LU1SENSTRASSE

18 RUE DR TILMITT

I,ARI

TELEPHONE: WAG R AIN 21.22 -21.23
TEL El:MAIM:NES REPAOH NT. PARIS

TELEPHONE: NORDEN 119 0 0-11010

TELEGRAMS: ARES THEP. BERL IN

BERLIN,

July 1 , 1926.

My dear Governor:

I received your letter of June 21, 1926, in the same mail
with a personal note from Norman on the general subject of Antibes.
I have since written him a long personal letter about our plans, and
assume that he has shown it to you.

I have also sent him a telegram

through my Paris office which will probably have arrived before you get
this.

The fact is that Louise and I would like nothing better than
to come to Antibes while you are both there.

My negotiations about the

supplemental contributions will have reached either a conclusion or a
deadlock by the first of next week, and assuming that your plans have
not changed, I think we will leave here either Sunda: or Vonday, with
a view to arriving in Antibes on July 7th or 8th.

I hope that nothing

will happen to shorten your stay, though I imagine that there is already the greatest pressure on both of you to come to Paris.
I hope to have a chance soon to talk to you again about Case.

As you probably know, I have recently had a cablegram from him declining the invitation with regret, and am enclosing a copy of it herewith
in case you have not already seen It.

I still feel that Case would b(=

the best choice for the place, and I have not quite given up hope that
he may possibly change his mind.




If, however, his decision is final, I

- 2 -

shall shortly have to look around for someone else, in order to avoid
being caught in a jam at the end of the year.

Confidentially, McGarrah

and our friends at the corner have unanimously suggested Jeremiah Smith,
Jr.

It is an admirable suggestion from many points of view, but I

should like very much to talk it all over with you before doing anything
definite, even in that direction.
77ith best regards, I am,

Faithfully yours,
C

Benjamin Strong, Esq.,
c/o Hotel Cap d'Antibes,
Antibes, France.
1 enc.

I have had one intimation from New York that Case had inquired
about the possibility of his getting a leave of absence from the Federal
Reserve Bank in order to take the appointment over here, and that informally he was told that this would be impossible. I do not know what
the ruling would be on this point, and I mention it only as indicating
a possible way of meeting the difficulty.
P. S.




(

L

L AGENT GENRRAL

THE AGENT GENERAL
11111.,FCR REPARATION PAYMENTS

DES PAIEMENTS DE REPARATIONS
PAR i S

BERLIN
33 LUISENSTRASSE

18 RUE DE TILSITT
TELEPHONE: WAG R A21 2 L2 2-21.2 3
TEL E012AMM:RM REPAGE NT. PARIS

TELEPHONE : 'NORDEN 119 0 0-11910

TELEGRAMS: AGENTREP. BERLIN

BERLIN, July 3, 1926.
PERSONAL.

riy dear Governor:

I am sending you herewith a copy of Note No. 24, containing a translation of the most important parts of the recent
Report of the German Railway Company for the business year 1925.
A copy of this Note has probably gone forward to you in regular
course, but I think it is worth bringing to your special attention inasmuch as it constitutes the first official record of the
results accomplished by the German Railway Company since its organization.

This record is important not only from the point of

view of the development of the Plan as a whole, but also because
of its relation to the question of selling the Railway Bonds.
Sincerely yours,

Benjamin Strong, Esq.,
c/o Hotel du Cap d'Antibes,
Antibes, France.

1 enc.




LAGENT GENERAL
DES PAYMENTS DE REPARATIONS

T IE AGENT GENERAL

FOR REPARATION PAYMENTS
BERLIN

PAR I S

33 LUISENSTRASSE

18 RUE DE TILSITT
TELEPHONE: WAGRAM 2122-2=3
TELEGRAM:HES REPAGE NT. PARIS

TELEPHONE : NORDEN 119 00-11910

TELEGRAMS: AGENTREP. BERLIN

Paris, July 15, 1926.

PERSONAL.

Dear Governor:

The other day I came across an interesting
passage in John Bassett Moore's Digest of International Law, and I cannot resist sending you the enclosed copy of it.

It does seem more than a coincidence that
this particular statute should be known as the "Logan
Act".

Faithfully yours,

Benjamin Strong, Esq.,
c/o Hotel du Cap d'Antibes,
Antibes, France.
1 enc.




1.---

3KTRACT !RO

JOHN BASSET!"

71017'S .DIG::.1T 0- DT :7.a

.IONAI Lill, VOL. IV,

Paces 448-450.

Al
8.

-'1TSTTTUTED 7.1SSIONS.

i al.

In 1798, after th^. ru:ture of diplomatic relatilns between the
United Sta',es and France, Dr. Geori;e Logan, of Philadelphia, G gentle -

man of fortune and education, a mezber of the Society of Friends, and

a Deocrat in politics, who had served in the le6islature of Pennsylvania, and uho was afterwards a United "' totes Senator, :ade a .loarney

to F:'ence with the ostensible object o' pursuing certain slientifio investications, but ,lainly, it seems, with a view to improve the relations

between the tuo countries and ,avvent an open war.

11, had .LIAACrOUS in-

trviews with Talleyrand and with menbers of tyke Directory, and was
"hailed by the

French newspapers as a messenger of peace;" Jut in the

United :testes, althou61, the benevolence of A.s Ltotivey was Lenerally

recognized, ':is unauthorized interference in international affairs wau

unfavorably received.

H., Washington his ccwrse was strongly condemned,

.71-Cle by Pickering, who vas then Secretary of State, it are h-'euly resented.

Congress at its next session parsed, under 2ickerines iLuzira.

tian, a stAute, vhich was n.:T,roved Jrn,ary 10, 1799, and which was cola.Aonly known as the "Logan Act," for the purpose o: rendering such selfconstituted. m!_ssions in the fut,..re illegal.

This statute, as it now

appears in the nevised Statutes, reads as followas
"Sec. 5335.

Every citizen of the thited States, whetner actually

resident or abi ing within the sale, or in any foreign country, Who,.

withpt the permissbn or aut:loitr of the 6vvernment, directly or indirectly, aeLiences or curries on any verbal or written correspondence
or intn.course with any foreign government, or ay- officer or a6ent



-2..

Atent to
reel 15"11
of any
govern7lerct

influenoe the

officer or &cent

measures or conduct

of any

thereof, in

forei,:z

.rsies with
relation to any
the United
or
uleputeS
Stases, or to
,ant of the
defeat the
United States;
measures of the
and over;
4! ident
parson, being
within, the
a ci'Asen of,
United States,
or
and not duly
irises, or as
fists in
authorized,

who

any such

uniehed by a

rI

a ..em

fine of not
t less

',orreivondenoe, with
such

more then

five

intent,

counsels,

shall be

thousand

dollars, and by
months, nor :More
imprisonment
motion shall be
than three
years; but
construed to
notAAL:
iliself or his
abrid60 the
riLlit of a
agent, to
citizen to
any forelen
apply,
rees of
.overmaent or th..
any injury
uhich he
scents
thereof for
:-Asy have
reits
sustained from
agents or
such
eubjosts."
,nvernment or
any

a tie

's to the

than six

mission of Dr.
Dirlomae,4
Logan, see
226-231;
Foster,
Adam's Works,
Layrenee's
A-Century of
615; 9 id. 243, 'Wheaton
of
Alerican
(1863), 1003; 8
Jefferson, II. 4671
244,
1
John
265, 293,
Whaton's Cri.
3071
4 La=, iWhaiton's State Trials,
Randal', Life
274; A2u St
20,211
As to
to
Papers,
Pickering's
For. Rel. II.
subsequent
opposition, o2 the
242.
violation, when out
see Adam's
istatt,t0 the
of
History o: the
enactment of which ;lower and in
United
No
States, IT. 236 he had
conviotioa or
ct seq. inspired,
set,
prosecution is
although it had
knew* to have
or
unefftsially, as a on various occasions tk-n place under
were
been
this
possible
euT4osed to have
invoked,
ground of
aotion rzLinert officially
infringed it.
individuals




LAGENT GENERAL

THE AGENT GENERAL

REPARATION PAYMENTS

DES PATE MENT S DE REPARATION S

BERLIN
33 LUIS ENSTRASSE

PARIS
18 HUE DE TILSITT
TfiL /WHORE WAG RANI 2 12 2 -2 L23

TELEPHONE: NORDEN 11900-11910
TELEGRAM:5 : AOENTREP. BERLIN

TELEGRAZAMES REPAGE NT. PARIS

Paris, July 15, 1926.
PERSONAL.

Dear Governor:

I received your letter of July 11, 1926, and am glad to know
you found the German Railway Report interesting.

I do not know whether

you have also seen the recent Report of the Railwey Commissioner, but
I am sending you a copy of it under separate cover, since it makes an
interesting supplement to the Report of the Railway Company.
Owing to Louise's illness I have had to settle down in Paris
for a few weeks, and I expect now to be here almost uninterruptedly until the 31st of July, when I have a meeting of the Transfer Committee
in London.

I note from your letter that you are expecting to get to Paris

yourself about the 20th or 21st of July, and I shall be looking forward
very much to seeing you.

I doubt, however, if Mr. Mellon will come to

Paris at all, unless he has changed his plans within the past few days.
I had a cable from him early in the week saying that he would sail on
the Majestic on July 17th, and would land at Cherbourg but avoid Paris.
I understand that he is planning to motor all the way from Cherbourg to
Rome, and that he is likely to stop for a couple of days on the way at
La Rochelle, near Bordeaux.

I have not yet heard definitely about this,

but if, in fact, he follows this plan I shall probably go down to La
Rochelle to see him.




Louise is feeling rather better, and has been much touched by




- 2

1

PAYMENTS
THE AGENT GENERAL FOR REPARATION
PARIS
fB RLE DE TILSITT
irr.LEptioNs: WAGRA9 2122-2125

BERLIN

_3
1110 L. r113 ENSTItAtit4 E
T V IJISPHONE: NORDEN 111D00-11.010

TeLEGItAMH: RE PA-0

T, PARIS

Tr.LnottApis: AGENTIREP, BERLIN




TrE9MMTW Paris, June 22, 1926.

My dear Governor;

Supplementing my letter of June 19, 1926,

I

definitive copy of my inam now enclosing herewith a
covering the operation
terim Report dated June 15, 1926,
first nine months of the
of the Experts' Plan during the
second Annuity year.

This supersedes the advance copy

enclosed with the previous letter.
Sincerely yours,

Encl.

Governor Benjamin Strong,
Hotel Cap d'Antibes,
Cap d'Antibes, France,

t

THE AGENT GENERAL FOR REPARATION PAYMENTS
PARIS

BERLIN
IPTKI.

I s RUE DE TILSITT
TE1.10.00N. : -WA0RA51 21.22-21.25

35 ILUIsENsTRArisu
ItONIC : NO1111EN 1 1 900- 1 1910

TEEICGN A Mb :

THLUGRAMS : AGENTRER, BERLIN

it EPAGE:Vt, PARIS

PARIS , August 14, 1926.

My dear Governor,
I enclose a cutting from the Paris edition of the"New

York Herald" under date of August 9, 1926, which may be of
interest to you.

I do not know who inspired it, but it is

not a bad sample of the kind of thing that has recently been
leaking into the Gernan Press.
Faithftally yours,

(7L

Benjamin Strong Esq.,
c/o Morgan, Harjes & Co.,
Place Vendome,
P a r i s.




This article is protected by copyright and has been removed.
The citation for the original is:
“Bank President Sees U.S. Reserve Man.” New York Herald [Paris Edition], August 9, 1926.




CODE TELEGRAM RECEIVED ZEPTELBER 1, 1926.

Berlin, August 31, 1926.

REPAGENT
PARIS

AG 354 STOP

PLEASE MINER FOLL^WING MESSAGE TO GOVERNOR STRONG AT HOTEL PRINCESS ;UOTE
FOR YOUR INFORMATION I AY NOT IN BERLIN AND E7SECT TO REMAIN }ERE UNTIL
FRIDAY NIGHT SEPPEMBM 3rd OR AT THE LATEST SATURDAY EVENING SEPTE!"3111 4th.

GRANDMA IS STILL AT EVIAN AND I E7TECT TO

HER THERE ON SEPTEMBER

5th AND TO R3;! IN AT EVIAN UNTIL ABOUT SEPTEMBER 12th WREN WE SHALL BOTH

RETURN TO BERLIN BARRING UNE7YECTED DEVEL017=

WE SHALL THEN STAY IN

BERLIN UNINTERRUPTEDLY UNTIL ABOUT OCTOBER 10th WHEN WE RAVE TO LEAVE FOR

TRANSFER COn'ITTEE MEETING IN RIM.

I HOPE TEAT IF YOU ARE COMING TO

BERLIN YOU WILL BE ABLE TO COME AT A TI`::

WHEN WE ARE HERE AND THAT YOU

WILL LET ME 1007 A FEW DAYS IN ADVANCE OF YOUR COMING.

INCIDENTALLY I SHOULD

LINE VERY MUCH TO =OW IF YOU HAVE HAD ANY FURTHER WORD FRI: MR. CASE.
IF NO WORD HAS Corp I SHALL PROBABLY CABLE HL DIRECTLY IN ORDER TO
THEM (HIM) A LAST CLEAR CHANCE BEFORE APPROACHING ANYONE ELSE.




GILBERT
UN QUOTE.

GIVE




THE AGE NT GENERAL

si FOR REPARATION PAYMENTS

L AGENT GENERAL
DES PAIEMENTS DE REPARATIONS
PARIS
8 RUE DE TILSITT

BERLIN
33 LUISENSTRASSE
TELIESIONE : NORDIE17 119 0 0.41910

TILE PRONE WAGRAIN 2 12 2 21.23

TELEGRAMS: AGENTREIP. BERLIN

TELEGIRAMMICS !: MIRAGE NT. PARIS

BERLIN sept

4, 1926

PERSONAL

My dear Governor:

The Agreement about the supplemental contributions has now
been formally concluded, and I think it may interest you to have the

enclosed copy of the press statement that I have issued summarizing
the terms of the settlement.

It has been well received here, and it

should prove to be one of the most important steps in the progress of




the Experts' Plan.

Faithfully yours,

Benjamin Strong, Esq.,
c/o Morgan, Harjes & Co.,
14, Place Vendome,

Par i
1 enc.

s.

et.
For Release Morning Newspapers,
September 3, 1926.
September 2, 1926.

PRESS STATEMENT NO

34.

The Agent General for Reparation Payments announces
that, with the ap proval of the Reparation Commission and the

Governments concerned, he has now concluded an agreement with the
Finance Minister of the Reich liquidating by a lump-sum payment
the two supplemental budgetary contributions payable by the
German Government in respect of the third and fourth Annuity
years.

The new arrangement substitutes for a total contingent

liability of 500 million gold marks a fixed payment of 300 million
gold marks, all of which is to be paid during the third Annuity
year, which began September 1, 1926, and ends August 31, 1927.
Under the provisions of the Experts' Plan the reparation
annuity payable by Germany for the third Annuity year would
amount to 1 200 million gold marks, and for the fourth Annuity
year to 1 750 million gold marks.

Of these payments the Plad

provided that the German budget would contribute 110 million god
marks for the third Annuity year, and 500 million gold marks fcr
the fourth Annuity year

A

t the same time, however, the Plan

and the London Agreement prbvided that these budgetary contri
butions should be subject to modification by amounts not to exceed
250 million gold marks for each year, depending on the yield of
the controlled revenues.




If the aggregate yield of the controlle

r)

revenues were to exceed or fall short of 1,000 million gold

marks during the Annuity year 1926 - 1927, or 1,250 million
gold marks during the Annuity year 1927 - 1928, the budget
contributions of the next succeeding years, respectively, were to
be increased, or reduced, as the case might be, by an amount
equivalent to one-third of the excess or deficit in the controlled
revenues, but not to exceed 250 million gold marks for either
year.

In actual experience, the aggregate yield of the con-

trolled revenues during the first Annuity year (1924 - 1925),

amounted to 1706 million reichsmarks, and the estimates indicate
for the second Annuity year (1925 - 1926), aggregate returns of
over 1900 million reichsmarks.

On this basis, the yield from

the controlled revenues in the third and fourth Annuity years w as
likely to bring the contingency into operation, and to make the
German budget liable, in all probability, for supplemental contributions on account of both years.

The agreement which has now

been concluded replaces the two contingent annual contributions,
which might otherwise have risen to a total of 500 million gold
marks, with a single definite payment of 300 million gold marks,
which Germany is to make during the third Annuity year.
The result is an important change in the arrangement of
the Annuities payable under the terms of the Plan.

Without the

new agreement, the Lanuities would have risen from 1200 million
gold marks in the third Annuity year (1926 - 1927), to 2000
million gold marks in the fourth Annuity year (1927 - 1928), and
2750 million gold marks in the fifth Annuity year (1928 - 1929),




3

assuming that the maximum supplemental contributions had become
payable.

This would have meant an increased burden on the German

economy of 800 million gold marks in the fourth year, as compared
with the third, and a further heavy increase in the fifth year
as compared with the fourth.

The new arrangement, on the other

hand, means that the third Annuity will amount to 1500 million
gold marks, as compared with 1220 millions in the second Annuity
year, while the fourth Annuity will stand at 1750 million gold
marks and the fifth at 2500 millions.

The result is a better

arrangement of the Annuities, which will reduce the danger of
undue strain on the German economy and facilitate the even flow
of deliveries and payments.

The agreement as a whole will contribute substantially to
the smooth operation of the Experts' Pica, and, incidentally, will
facilitate its administration by eliminating factors of uncertainty
thnt might otherwise be troublesome.

One further effect will be

to increase by a substantial amount the funds available for
deliveries in kind during the third Annuity year.

This settlement of the question of the supplementary
budgetary contributions has been made by the mutual consent of all
the parties, in the conviction that it will facilitate the
operation of the Experts' Plan and promote the best interests of
all concerned.

It is thus a further evidence of the spirit of

friendly accommodation, and a new earnest of the good-will and
mutual understanding that lie at the basis of the Plan itself.




I_: AGENT GENERAL

THE AGENT GENERAL
REPARATION PAYMENTS

DES PAIEMENTS DE REPARATIONS

Off

PARIS
18 RUE DR TILSITT

BERLIN

33 LUIS ENSTYIAMEIR

Ti11, E PHONE: 'WAG R AA1 21.2 2.-212 3

TELEPHONE : NORDEN 119 0 0-11910

TEL EGF1AMMES REPAGENT. 14ARIS

TELEGRAMS : AGENTREP. HEREIN

BERLIN

.\;

gilq17-1

December 11, 1926.

-1141, 9

IMISONAL AND CONFID'ENTIAL.

Dear Governors
I am enclosing herewith, in the thought that it may
interest you, a copy of a memorandum which I have had prepared by
the Economic Service of the Transfer Committee in order to give

comparative figures for reparation payments and Inter-allied debts.
The figures are based on the agreements already in force, or awaiting ratification, and cover a twelve-year period, running back
about two years to the beginning of the Experts' Plan and extending about ten years into the future.

The memorandum is intended only to present the figures.
It has not been prepared for general circulation, and I should,

therefore, appreciate it:egarditasconfidet,isaifyouwouldx,r
Sincerely yours,

Benjamin Strong, Esq.,
Governor of the Federal Reserve Bank,
New York, N. Y.
1 enc.





Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102