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l; Paris, 26th August 1924. Summery of the London Agreement. ....+.41. In the ;-rotocol and :annexes I to III of the London Agreement the Allied Governments, the heparation Commission and the German Government confirmed their acceptance of the Experts' elan and adopted a program for putting it into full effect by the end of October, enumerating the steps to be taken in restoring German economic and fiscal unity. They elaborated certain provisions of the Plan, particularly with reference to deliveries in kind. The Experts having emphasized the necessity of expending almost exclusively within Ger:may the sums available for Treaty payments during the next two years, deliveries in kind are expected to constitute a considerabl: part of the payments to the Alli under the early annuities. rrovision was made in the Agreement for a special Al German comaittee to work out a practical system of placing and executing girders an to consider the practical spplication of the principle that these d(liveries show' not be of an anti-economic character. It was further agreed, under conditions designed to saferunrd the meinienence of German economic and social life, that deliveries of coal, coal-derivatives, dyeituffs, etc., should be continued after the specific Treaty obligations respecting delivery of these commodities had been fulfilled. :iachinery was provided for arbitration of disputes which might arise over. technical certain questions concerning doliverles in kind end the transfer of funds in the also of complaints reearding defects in the/working of s to collection of payments and control of securities utes ccncerninr the interpretation of the Plan or of the ed in pursuance of it. - 2 mongst themselves the Allied Governments in 1%rticle 1 of A-nex TV adopted an amendment do the Treaty prrreiding that when the I:operation Commission is deliberating on filly point relating to the :xperts' leport, a citizen of the United States shall take part in the discussions and shell vote as a fifth member of the Commission on full equality with the other members. This member is to be vppointed by unanimous vote of the Lepe-ation Commission, or feilirg unanimity, by the ?resident of the 'Permanent Court of International Justice, and the appointment is to lapse if the. United States should be officially represented on the heperation Commission. The Allied Governments ---* further dealt with the matter of decisions Ly the Commission granting or rejecting applications to declere Germany in default under the !operation clauses of the Treaty or under the Experts' Plan. They agreed by amendment to the Treaty that any such decision by a majority might be appealed by any member who participated in the vote to a permanent arbitrel commission of three impartial and independent persona, chose decision shall be final. president of which is to be vn American, will be nppointed by unanimous vote of the Lepsration Commissar., or feiling unanimitylty the President of the Permanent Court of International Justice. The Governments further agreed that sanctions will not be imposed under Article 18 of Lnnex II to i'art VIII (Reparation) of the Treaty, (which refers to "voluntary defeult by Germany") unless a default has teen established -ithin the meaning of Section III of Part I of the Fxperte' Feport (which refers to "flagrant failure to fulfill the conditions accepted by common agreement "). In article 2 the isllied Governments dedlare that in this case, "acting with the consciousness of joint trIsteeship for the financiel interests of themselves and of the persons who advance money upon the linos of the said plan, they will confer at once on the nature of the sanctions to IA, applied and on the method of their rapid and effective application." In irticle 3 they "declare that in case sanctions have to be imposed in consequence of a default by GerTrny they will safeguard any specific securities which my be pledged to the service of the loan." and that "they consider the service of the loan as entitled to absolute priority Rs regards any resources of Germany so far PS such resources may have been subjected to a general charge in favour of the said loan and also as regards any resources that may arise as a result of the imposition of sanctions." In Article 4 they agree that "Any dispute between the signatory Governments arising out of Articke 2 or 3 of the present Agreement shall, if it cannot be settled by negotiation, be submitted to the Permanent "oust of international Justice." - 4 II. More Letailed eunestry of Important epecifio =rovisions of the London Agreement. The Special Com:n ttee on deliveries in kind will determine satisfactory methods of placing orders end securing deliveries which shall adhere, so far as possible, to ordinary commercial usage; will exwrine "the best means of applying the. provisions of the experts' eeport relative to the limitation of deliveries to those which are not of an anti-economic character", snd will recommend "the measures to be taken against any persons who, may infringe the prohibition against reexportation of deliveries". the Committee will consist of three members of Allied nationalities and three Cermens. In case of differences it will co-opt an additional member of neutral nationality, to be chosen by agreement or in default of agreement, by the heparation Commission. The decisions of this Committee are subject to approval of the Reparation Commission and of the Transfer Committee insofar as the latter is concerned end are not to be modified without the consent of Gereany. Lha programs of deliveries are to be ltid down by the Reparation Commission after opnsultation with the Transfer Cortnitties. Under the reparation clauses of the Treaty C rmony eccore'ed options for delivery of certein euantities of specified commodities, including coal and coke, up to 1930, sulphate of nmeonia up to January 1923, deeetuffs and chemical drugs up to January 1925. The Agreement provides that deliveries cf these comnodities in particular end of others mentioned in the Treaty shell continue after the fulfillment of the Treaty obligations. The eeriods for which the deliveries will run are to be eetermined by the zpecial go:I.-Litton oh deliveries in kind which ilimy also exclude ce tain proeunts if they are indisp,nsable for the protection of the Cermen netionel esonomy. The programs of delivery, after consultation with the Transfer Committe,: are to he laid down by unanimous vote the German Government. of the heporetion Commission in agreement with ?ailing the German Government the unanimity of heparation Commission or agreement with commission. programs of deliveries are to be prescribed by an arbitral between the commission is to be appointed in edvance by agreement This et;ARration of agreement Commission acting unanimously and the German Government or in default Justice. by the President of the lermenent Court of International The Chairman shell be sn American. ty the All programs for deliveries in kind, whether laid down be fixed "with due Leperetion Commission or by the i,rbitral Commission, shell position of her regard to the por,sibilities of production in Germany, to the far as is supplies of raw materials and to her domestic requirements in so life and also with due necessary for the maintenance of her social and economic regard to the limitations set out in the ixpertst :report." The amounts of prescribed in the deliveries in kind are automatically limited by the annuities the Lxpertst elan, which embrace all amounts for which Germany is liable to :Powers for costs arising out of the ar. They are further subject to the limits of the German fixed by the Transfer Committee with a view to the maintenance exchange. Under the Plan the Transfer Committee ley on the instructions of the heparation Commission and at the request of creditor states by debiting their reparation accounts transfer marks to private individuals for the puroose of making purchases in Germany. The Agreement provides that differences of opinion letween the Irausfer Committee and the Ceram Government regarding classes of property in 4hich these investments may be made and regarding measures to ensure that investments shall not be temporary shell be referred to en arbitrator chosen by agreement or, failing agreement, by the ?resident of the Permanent Court of International Justice. If desired by the German Government this arbitrator shall be a national of a country not interested in Cermen reparation payments. Pm shall rive consideration to the principles enunciated by the Plan, namely that the investment must not 1:n of a temporary character and that "the German Govern- ment is required to have due regard to the necessity for meking mnximum payments to its creditors, but is also entitled to have regard to maintaining its control of its own internal economy." the 1.greem-nt provides that the question of the existence of "concerted financial manoeuvers" for the purpose of preventing transfers of funds outside of Germany (J.nnex 6 of the Plan shell be referred to an Arbitrator in case the Iransfer Goalmittes in equall7 iivided. qe shall he a financial expert chosen by agree ,:nt of the N-aittee or felling errenment b Court of Into:net/0nel Justice. the President of the ?ereenent On all other questions if the Transfer Committee is equally divides' the Chirmen shall have r casting vote, Then the 'Illistributed funde in the lehnde of the Arent General reach the limit contempleted by the plan a deoleion of a minority of the Transfer Committee that certain measures to defeat concerted financial manoeuvers should not be taken or that such meromuvers have not taken pleas may be appealed by a member of the minority to an Arbitral Tribunal of three financial experts, the chairmen of which shall be an imerican. This Tribunal will be selected in the se:re manner as the Lrbitrator referred to in the previous paragraph. Any complaints by an interested government (Allied or German) regarding defects in the technical 1,orking of the Plan, no far Ps relates to the collection of Gorman payments or the control of securities therefor, may be addressed to the peppration Commissebon which will obtain the advice of a committee consisting of the Agent General, the Trustee or Trustees and the three Commissioners. If the !leparation Commission is not unanimous in its findings or if its decision is not accepted by the German rovernment any ar the parties interested may submit the question to en arbitral committee of 3 persons chosen by agreement between the Reparation Commission acting unanimously and the German government -or 'n default - of such sgreerment by the :'resident e of the Court of International Justice. &abject to powers of interpretation conferred on the heparation Commission by rare. 12 to .t,nnex II of tart VIII of the Treaty, disputes arising between the Reparation Commission and the Carman government regarding the interpretation of the elan or the German legislation enacted in execution of it shall be submitted for decision to three arbitrators appointed for five years; one by the Leparation Lom.:-ission, one by the Gerraen government .0 the third by agree:lent, or failing, thet, by the iresident of the Court of International Out: Line. ..ending decision the arbitrators rraty order any sppropriete provisional measures to avoid interruption in the working of the plan end to safeguard the rights of tho parties. 1 MITIA Re ser D tatrid ic77/z1- REPORT OF COMMITTEES OF EXPERTS TO REPARATION COMMISSION Complete Official English Text with Annexes From FEDERAL RESERVE BULLETIN, May, 1924 WASHINGTON GOVERNMENT PRINTING OFFICE 1924 7 'N. C I. ..vona ea..45.......M9.3.4,0.10r Memorandum On account of the one milliard gold marks which according to the schedule of payment of May 5, 1921, Germany has to pay until August 31, 1921, there have been paid so far 300 million There remain to be paid, therefore, within six weeks gold marks. Part of this latter sum has been provided 700 million gold marks. for thru credit operations and otherwise by the German Government, but in any event Germany will have to buy in the open market until August 31 an amount of foreign exchange which may safely be estimated at between 400 and 500 million gold marks. The purchases of foreign exchange so fax made by Germany have had a disturbing effect not only on the rate of exchange of the Reichsmark but on the exchange markets thruout. Since the beginning of those purchases the U. S. Dollars have risen remarkably to the detriment of all European exchanges. That phenomen attributed to the request of the separation Commission that all It has to be payments by Germany should be made in U. 6. Dollars. stated, however, that the rise of the dollar has continued altho some time ago the Reparation Commission did no longer ask for U. S. Dollars but for payments in the currencies of the allied countries and tho the German Government, of course, has ceased to purchase American money. It is interesting and somewhat strange to see that in a general way the rates of exchange of the other European countries do follow the movements of the Reichsmark in respect to the U. J. Dollar. From Nay to the middle of July the Pound Sterling has fallen from about clA to 0.65 (cable rate) whereas the Dutch Guilder in the same time weakened from about 35 cents to about 32 cents. When quite lately the mark rose in New York from 1,28 to 1,35 there was a corresponding improvement of the other European rates as against the U. S. Dollar. There is no other satisfactory explanation to be found for the disturbing and disquieting state of affairs except the powerful Such speculation is actively going on influence of speculation. thruout Germany and perhaps likewise in other countries. Everybody knows that the German Government is in dire need of foreign exchange and has to face other sanctions if it does not succeed in finding the full billion goldmarks until 31st of August. Hothing is easier than to speculate on such a basis on the back of the German Government. Every speculator, therefore, is selling Reichsmarks and buying foreign For even tho it has been made exchange, by preference U. 3. Dollars. public that the Reparation Commission does for the present not want the payment of U. S. Dollars, the currency of the United States is generally known as the standard currency, equivalent to gold and which regulates all payments in so-called gold marks. It is clear that the more Reichsmarks are sold by speculation and the longer the rise of the dollar continues, the less it will by possible for the German Joxternment to buy foreign exchange. It is not only a question of buying at higher prices and paying for the 1 milliard goldmarks, perhaps 20 milliards instead of 15 milliards paper marks. That would be serious enough. But the essential point is that the continuous rise of foreign exchange in Germany as compared with the Reichsmark induces everybody to hold back in offering foreign exchange closing thereby practically the exchange market to the German Government. It is a well known fact that foreign exchange as well as other goods will be freely offered only at falling prices. It is clear, therefore, that the more foreign rises, the smaller will be the amount the German Government is able to buy. If that situation does not change, a crisis will be inevitable by August 31 not only for the Reichsmark, but for the exchange market in general. It is hard to foresee the consequences of excited speculation a few weeks hence. F -2- The German Government is in a "corner" formed by unscrupulous speculation. It is necessary to break that corner, but the German Government is powerless so long as the critical date of August 31st remains in force. Speculation, otherwise invulnerable, can be caught only if the absolute necessity to pay the full billion on August 31st is done away with, but in that case the speculation which is by far overdone and does not at all correspond with the underlying economic conditions is bound to break down. One might object that an extension of the payment, say of three months, i.e. until November 30th, would not essentially change the situation and would only postpone the critical date by three months. But such a view would not be justified. The amount which the German Government may not be able to meet on August 31st, may be at the utmost 500 million gold marks. Now, long experience has shown that it is easy for the German Government to collect in ordinary times 150 million gold marks foreign exchange a month. That would make 450 million in three months. But the heavy shock speculation in foreign exchange must receive if it be made known that Germany is left another three months for paying the remainder of her present debt will at once flood the exchange markets in Germany ,pith enormous offerings of foreign exchange and will bring about a corresponding rise of the Reichsmark in other countries. The consequence of the granting of the extension, therefore, will be this, that the German Government will be enabled to pay the full milliard by August 31st. In other words, the only practical way of enabling the German Government to fulfill its obligation on August 31st All be to grant her an extension of the same obligation for three months. The German Government, however, cannot possibly come forward with the demand of such an extension of time. That cannot be done for political reasons, but there should be no objection to the Committee of Guarantees making such a suggestion to the Reparation Commission and to the Allied Governments. The Committee of Guarantees has just completed a thoro study of Germany's economic and financial situation. It ought to be fully aware of the facts elucidated above and it should plead for the extension of three months, not in order to grant Germany a favor, but to meet the necessities of the circumstances in order to safeguard the interests of everybody concerned. July 15, 1921. , July 20, 1921. Recent Conversations between French Minister of Reconstruction Loucheur and German Minister of Reparations Rathenau, -:-:-:-:-:-:-:-:-:The French newspapers, for some weeks past, have been referring to conversations between Loucheur and Rathenau on Reparations The first public reference was to a meeting of these two questions. The public reports were somewhat gentlemen in June 1921 at Tiesbaden. This led to a suspicion that the conversations were perhaps ambiguous. overstepping the bonds of purely Franco-German negotiations, perhaps trespassing on the functions of the Reparation Commission in its obligations to all of the Allied Powers collectively under the Treaty of Versailles. It was accordingly suggested that Loucheur be asked to appear informally before the Reparation Commission and to give a general outline of what had taken place during the various conversations. It was felt that the best interests of all would be conserved if Loucheur were to give a fratile outline of what had transpired so as to disprove the rimy wild rumors which were floating about. Loucheur consented and came to an informal meeting with the Reparation Commission. He laid special stress on the fact that his conversationswith Rathenau had taken place on the latter's instigation and that these dealt exclusively with the question of " Deliveries in Kind" to France under the Schedule of Payments. Loucheur asserted that France could get along very well without these deliveries but realized that they were necessary if Germany was to carry out her indemnity The conversations were therefore based on the theory that agreement. France ought to make every effort in the common interest,even at some This statement may be sacrifice, to accomplish the desired result. accepted with some reserves, but it is an excellent and safe position for Loucheur to take for the Allies are properly anxious for France to help Germany pin kind so that France will have a distinct advantage in discussions if she takes the position that she is being pushed further than her real interest would lead her. The deliveries contemplated by Loucheur and Rathenau in their Loucheur had in mind the sum of 10 milliards discussions were large. of gold marks as representing the deliveries in kind to be effected over a period of perhaps three years. But unless some change in the indemnity arrangements is made, deliveries in such volume mean that France will have annually a large balance to pay to Germany or the Allies for the total annual payment by Germany on indennity may be of this reckoned at 3 milliards, three hundred million, and France's would amount to something like 1 milliard seven hundred million gold marks. In the conversationsAvith Rathenau, Loucheur had set the limits of France's annual burden even below this 1 milliard seven hundred million. His limit was'a one milliard of gold marks; the difference between these two figures resulting from the fact that the French Government wanted the amount of this differenle,to meet Govermaental obligations, Assuming, therefore, that France took from Germany deliveries amounting to three milliards annually, France would credit on reparations one milliard, but the credit for the balance would have to be postponed in Loucheur had talked with Rathenau on the theory of making some way. -2- the settlement by instalments over a period of ten years. One detail of the proposition was that the deliveries should be made by some Syndicate of German private interests to some Syndicate if French private interests, the general purpose being to avoid the necessity of the French Government incurring the indebtedness direct and also probably to avoid conflict with the Schedule of Payments. This is simply a detail, for it was clearly contemplated that the German Lroverenentshould finally assume the obligation to furnish, and that the French Government should finally assume the obligation of the payment or credit. hile other details were involved the foregoing brings out the important point against which criticism was directed. The first criticism was that the arrangement would impose an additional economic burden on Germany as a nation. She would be obliged to pay the total annuity called for by the Schedule of Pgyments and,in addition, would have to furnish to France an long credit the balance of the deliveries in kind above the 1 milliard. Loucheur replied that this criticism was well founded; but that as France could not possibly take laree deliveries in kind in any other way, the arrangement really alleviated her burden because sooner or later she would have to pay cash if these deliveries were not made. The second criticism was that the arrangement would give France She would have received a very large value in addia certain priority. If thereafter Germany made tion to her 52i. of the annual indemnity. default in the annual payment fixed by the Schedule, Brame would be so much ahead of the other Allies. The informal discussion between the Reparation Commission and Loucheur was frank but harmonious. Leueheur's statement evidently allayed some of the suspicions in spite of the criticisms which were Everybody expressed sympathy with the general purpose of the made. There was a general recognition of the financial difficulty neggtiations. involved for France if, without some such arrangement, she accepted deliveries in excess of her percentage of Germany's annual payment. It was interesting to note the clear recognition by everybOcly present that Germany could not meet her annual payments unless large deliveries in kind were arranged.Beyond this was evident real doubt whether Germany could meet her payments even with the aid of such In other words, in speaking of Germany's possible deliveries in kind. default, the Delegates of the heparation Commission did not pretend to be dealing with something; theoretical, but with something which was more than a mere possibility. NO solution was reached but the subject was clarified ana the eatter left for further consideration by all, with, however, a definite understanding that this problem which involved a chaage in the Schedule of Payments should be brought by the France Government to the attention of the other Governments concerned for discussion at the next meeting of the Supreme Council. -1)/zutt RLPOI, CIF A. C,01.411i4w1aION V ITT KERR EMMA) PRESIDIZTT OF Til GERM KRIEGBLAZTESKOMMINSIOI JUNE 1921. The following is a summary of Herr Berg man's remarks during an informal conversation with 1,1r. Bamelmans and myself in Berlin, concerning German first annual payments under the Schedule of Payments. I understand that these views have been informally presented by Bergman to the British and French on the Reparation Commission and are now under consideration. Bamelmans advised me of having reported the matter to )elacroix who is inclined to be favorably disposed and has referred the matter to his Government. The following is a summary of Bergman's remarks, viz: Bergma n referred to Germany's difficulty in meeting the first few annual payments under the Schedule of Payments. For the purpose of determining what Germany had to pay within the next few years, he took the figure of 5 milliard gold marks as representing the value of German exports, and thus the "index" figure referred to in Article 4 of the Schedule. 26i. of this or 1,500 million constituted the "variable" annuity which added to the "fixed" annuities of 2 milliards would give a total annual payment of '.'i,500 million gold marks. Bergman was firmly of the opinion that the "export index" which had been selected as "a measure" of Germany's economic recovery was the worst that could be found. Its practical result was to automatically restrict exports and even to foroe the Berman Government to actually take measures to cut them down. Bergmants argument was that the Allied Governments should provisionally suspend the application of the index scheme Lind admit a total annual payment from Germany of 5,500 million gold marks -2- for a period of five years. If this were possible 1-q3rgman's vier was that the German Government could cover such 5 years' payments by means of an internal gold loan in Germany together with other reasonably assured revenues. He expressed himself as convinced that many Germans still held foreign values of Laportanoe now concealed. 4lese values had disappeared uuring the period from the signing of the ';2reaty in July 1919 until the begin- ning of 1920. As evidenoe of such disappearances, Bergman stated that in July 1919 the value of the German mark in Holland was 20 oents but by July 1920 it had fallen to 2-1/2 cents. According to Bergman, who has been in close touch with banking and investment activities, the only explanation for so great a fall was the mass purchases of foreign money and other foreign values by German nationals desiring to protect internal financial difficulties or even from a revolution which at that time was feared. Bergman felt that it would now be possible for the German Government to raise en internal loan of from 5 to 6 billion gold marks were it possible for the Government to exempt such loan from past and future taxes and at the same time grant amnisty to its nationals who, contrary to German laws, had so disposed of their German ma rks. Bergmanalso believed that by definitely fixing the annuities for a period of b years a certain economic stabilit* would ensue and it would be possible for the German Government to arrange through neutrals for a loan in the neighborhood of 2 milliard of gold marks. The two foregoing loans, according to Berman, should therefore yield between 7 and 8 billion gold marks. This addlyd to the value of "deliveries in kind" to the Allies I (, e2-0-4 r , r e e, 4 c during the next 5 year" would amply protect the service of Us bonds for the period in question. . A :7 10' Bamelmans at this time interrupted Bergman stating that he did not believe the Allies could be prevailed upon to consider a project of this kind at the very moment of the acceptance by Germany of the Ultimatum and the going into effect of the Schedule of Payments which contemplated an increasing annual scale of payments by Germany under the "variable". On the other hand, Bathelmans expressed the Vifar that a plan such as that proposed might be acceptable were it possible for an additional annual increment of say 100 million gold marks, being added to the 3,300 million assumed as basis for the first year. Bergman opposed the idea of the addition of this annual increment but as counter-proposal suggested that instead of fixing the total annuities for 5 years, 3 years be accepted, and, in the meantime, the adoption of some ether basis of index considered to meet German paaments after the expiration of 3 years, The foregoing conversation should not be tahen too seriously. The partisan position of Bergman has not been lost sight of and the optimistic "yield" from the proposed loans has not been overlooked. On the other hand we all know that fergmants relations with the present Lerman Government are of the strongest possible character and that, therefore, he would not have made these statements - whioh he knew perfectly well both Bamelmans and myself would report - had he not a certain justification in believing that some such solution as that proposed was under consideration by the German Government, James A. Logan, Jr, r!/;t M rue de Tillatt ad August, lta, at:troller-General Y.nuolert, ?resident, 3,--tmittee or oaarantees, natal Astoria, -4rin. 4, dear Controller-flenerals It 20,..'78 altar thai Germany will ow:plate the ono milliard payment by :sagast Do; bt as to this point aild the inAe,hoo of toe vacation season hire led to an interval of inactivity. I take it for ouno to life and prooeed to granted treat t.e Cornaittee Will iiklw carry into praotioal ffsot the deeisions as to the sedrity to be obtained fry m Gertaaay and as to tae supervielon to be exorcised over Clerw many's finanees and onstme, also that the ..;onnittee will shortly hold another nonfereuoe with the crerman Government in Jerlin. But I wish to sugiopst Ono nolo:Jolt/ of ac naidering °finale broader lines of policy. The apeointment of this Committee as a sp,Atial instrument of the 1operation Commissi.A:i for deelizi.; with the leleanity ea the bonde, 1n1 with 3erman ft:manna& in their relation to the indeeanity and Vile bonds emphasises: greatly tne reskens ibility of the R. 0. Vow mcre than before the 71:%ere zhom -e represent and world opinion will naturally and rightly look te the :.41:uration Cemmisvion amiki the 0oNmittee of a:ars:it:see to influence the *curse of sweats vitals the Ixesoribed limits, to point out emoo..1ree -11.10esary YJ xaacth to warn of DA:Nadine ;starter, to raae judgment on Germany's efforts and their IDIOUCSS or failure, Oar 'Jeoril. thould ;IOW be or more lenitive and constructive klAr30,011 than befits,. I b neve this is not only a duty, but an oportanity beta for the .:xamis.lon 444 tk, In elaboration of the for:Acing, lmt me seggost two lines ot ylr:t. I believe that it is utter4 kmposeiblo for 3ermaay to pay the army ooAs, the old ring i.f,u e balaacee, the es:re:nee of tile various oomniesions and the reparation annuities, unless; sone working ache ,s for large deliveries in kind is arranged. I Inl.lievo a.L: that it is nooks:teary zA:,c i.rIctleablu to use tert:An labor in the devastted regions. .part ron tile advantage to rolAratioas I regard these UFO things as of extreme importance for other reascea. :"first, the.; halp to :1-evont art:Mr:I.:J.1 distortion of tae ectonomad lit:: or countries in dbloh the devastation was greatest. It would, for instanos, Us a permanent Injury to rranoe to divert fram natural and pernaneot Moe a 'env coroeatage of her industrial effort to meet the needs of resonstruotion. -*pond, saeh arranf.amr;ntL for the use of Gereaa material* end labor uoold Antal:to the Aanger now fearod by all eoantrivs, viz: ti:.1 Garmany'J amporte, stipar lated 17 till) neoessity of meeting the iadennliy, and by her deprooiating eao4ango and oonsequent low labor oess, will 4surganiae the markets and indwztrt.le r-f n11 other oenntri:.m. So tar as we are all in agreemeet en the foregoing, I "believe the Ocesaission and the Committee should make every effort to 1ring about such a Should emphasize their necessity, perhaps publiely. but arrangements. should use air Inflienoe to preeent the oerteinly to oar govermeentc. less imi;ortant disadvantaf-!es and cliff/mattes frmi obstrueting the greet advantages Aaid we should urg6 speeds already fear =oaths of the first year of the ebednie et vlaymantt nave passed. ith or ericio:A snail arranr,ements. Gamey mow summed egee4. in nesting; her obligations. But sepses as doe' not what le then the position of the '7orTri20102 and of the .0enOttoc. 'As all know enough and her pezeimistio opinions enough to realise that this contingeney cannot be considered to ,uicily or ton carA1111). In my judguant tau answer is k. The )hint be la rositIon to sag that with the :Lid of the most comp&teat economic) and financial advloe it has followed Intimately the detalle of the Germ4n effort* that it L--.Le studied oarefully the praetleel methods of acoomplishing resulte. that it has segveted to the lilies anti tit '";tmmnuy over, ;cecible mans of inprevint; the situation. 11. The Commission and the Oommittee ought. it Germany ever derialto, to be la positiz.n 3aj IO tag aw.h:ritativolg hocese it knows better at least than serene else, what are the reasons fur the failure. The 1,77ertInt .nostica - not only for Gemini, or for recce, ttt for the world, will at that moment be e les Gernany really tried to Val:41 her obligation*? ':hero aro plenty of joernalitte, roliticiaus, And perti- sAns in Germany and elseehers whet* loud vociferation of opinion can be foretald tedey. BrA the ',110FtIcn rich rill then to t1-7 !oat isiorL.ht iuestion in the .vrld ought to be answered by the best aatherity in the world. Vhe Commission and the lommitlec ooOt to to in i:ok:it:on to speak Ath that authority. I request that the sanitary general of the Csimmittee have this n!;lish and oireulated as a reallar Annex. 1 llso request that it be entered en the Ag,,nda for coneideretion at the next meeting of t. .oimeittee of quaranteee. letter reprodueed in -1.(Aush and alt.ht,3117 yo ors, (9IrLned) Ja!ata unofficial liepreeentAlve of the United Statue with the .-.7cmmittee of Guarautoos. 18 rue de Tilsitt, Paris. September 2, 1921. Ilemorandum for -inute service: The United States Unofficial Delegate requests the insertion in ::inutes 18 (Committee of Guarantees) of his remarks made during the meeting, and which are hereunder given. "58-A, Note from the Unofficial hepresentative of the United states (Annex C.G. 67). Logan, after briefly summarizing his views as set forth in Annex C. G. 67, made the following additional remarks: His object in presenting the note was first to stimulate some action which might result in materially increasing the deliveries in kind to be made by Germany on reparation account and, secondly, to cause the Committee to frankly and immediately face any possibility of Germany's default in the Schedule of Payments and take action in consideration of such a possibility. In justification of the first point of his. note, he said that the necessity for angrenting deliveries in kind at an early date to the highest possible value has been clearly demonstrated by the difficulties experienced by Germany in securing the foreign values essential to the payment of thefirst milliard, which was finally accomplished only uy the withdrawal of some 80,000,000 of metallic gold from the remaining reserves of Germany. He further observed that measures thus far taken by the Committee produced only paper marks and that these paper marks must remain unconvertible into foreign currencies under prospective conditions of Germany's foreign trade, and that this demonstrated necessity of relying in large measure upon deliveries in kind if the reparation debt is to be paid. Upon the second point lir. Logan pointed out that public opinion, as reflected by the Press, in uneasy and skeptical with regard to Germany's actual ability to meet theterms of the Schedule of Payments. In his opinion it was the dalty of the Committee to qualify itself at the earliest possible date as a body of experts on the economic and financial condition, actual and potential, of Germany, particularly with regard to the ability to meet the terms of payment. The Committee should be in a position to reassure the Government and eventually the public upon this point and consequently upon the security of the bonds. It was its duty to advise the Reparation Commission forthwith whenever reasonable doubt existed as to Germany's ability to carry out the program. He stated that he ventured no expression of personal opinion as to Germany's ability to meet her obligations but that he wished only to urge the Committee forthwith to inform itself and reassure the Reparation Re further stated Commission upon this question. -2- V -3- THE CaCIITTEE TOOK hOTE OF THE CONSIDERATIONS PUT FORTARD IN MR, LOGAN'S WWORANDUM AND DECIDED TO REZUEST ITS DELEGATION IN BERLIN TO UNDERTAKE A CRITICAL EXALINATION OF THE STEPS TAKEN BY THE GERMAN GOVERLITT SINCE THE CWTJITTEE'S LAST VISIT TO BERLER TO BALANCE ITS BUDGET. THIS AMY, THICRWAS DESIGMED TO ALIO:: THE COLIL:ITTEF. TO JUDGE OF THE SINuERITY OF THE EFFORTS LADE IN THIS CONNECTION HT THE GEMLAN GOVERNIMIT AS A RESULT OF THE OBSERVATIEITS LADE IN THE NOTE NO. 1 OF JUNE 28th 1921 (ANNEX C.G. 37 b) SHOULD IN CONSE4UENCE BE DIRECTED TO TEE LIEASURES TAKEN OR CUT`5.22LATED BY THE GE RUN GOVERNIZNT TO ARRIVE AT A REDUCTION ET E_PENDITURES AND II MaREASE Di ai;v1ailiE. (Decision of Committee as recorded by Secretary General.) "Li.. Logan stated that ix' while the decision taken was perhaps a step in the rirht direction, he nevertheless considered it as insufficient and requested to be recorded accordingly." For t :e General Secretary. FBB:P cs. k NTLI. September 191a. Wit WU ill TRUATiatT Or CUR raw= WAR LOANS OillefliCT1011 7 ITU T1 ammo MARMON SHITLIRINiT. 2he Germen Lep,,r,,tion imbt to the Allies and the Tietto of the Allies to the Ltited dtetes result in forming a sort of violous financial and economic ovals from rhioh both America fted &woke suffer, 2he Gomm Aeparatioe Bill rdi fixed by the ^flied bill of damnges is really conservative, particularly wheal 'we (molder that the amount billion gold marke - not only inoludes the total Allied 7teparation claims ago net Germany but also the total claims against Austria, iunigtry and Rultocrin. Under the turns of the 'haesty of Yereilliell, Germany assumes responsibility for the payment of dumages occasioned by her Allies (balm the .L .r, As proportion of the totL1 claim proimrly chargouble to Austria qnd Runge* has not been definitely fixed - BulcAriate debt is fixed by the Avaty of Uuuilly at i.teto. billion gold rarke payable by (lemon the debts of her Allies, , million t;olu franca. tit the I believe about le million ropmecut qux Allied friends, partitstlerky the French, need oash to meet budget In ary event, they will always prefer ()ash as distinculehed from *deliveries in kind" in order to protect their on industries from competition and eventually, if they are to meet tee it oblir.tion to the Milted :Antes, deficits, Nevertheless durowny in her isuradnt economic situation cannot Jew cash (foreim exohange) to my great amount in the ne:4, future, oorl,wiv onn meet her obliaution molder fleparation Series "A" Bonds, will hove difficulty for ,.. few years in meeting her entire oblition under hepartion dories "B" bonds but ultimately will meet those, he value of Aely,rAion Juries nC" bonus is most desidedly coefitiolable and their ultimate amortisation therefore vroblevittiO, (14e Amnon t). If her entire ix1A-mtion oblitions are to be met, they a:.n be met only byvopening to her the rairkets of the world and aftecting in kind the products of her indaattles. :Jur Milli. lbe position of the United Staters is much the ar.,,e. loqns represent largely the v_ilu© of Amerlean svpi lies purchvseti daring the ,.or in ,...Series =Agent to Lurope, Ate United dtottes is in need of cash to retire as Iv.rp,e hn amount as possible of its national loans, so as to reame taxation, revertheless, we too, vhile admittlw tigt our loans to the .Ulles represent our exports, desire onsh in return, and :re lmith to allow our debtors to pry off thEfir indebtedvess by their that is, by "deliveries in kind% iburopey n politioal leaders NAP nervous exports to us, vild Voreed to extreme lines of of:Wm* thrott/h the selgovees of palls oyit.iw, Aismw of these political loaders realize the tallow of their position ant admit it in personal conversation but declure that they are raced with sn Impossible Ads results in foolistiweeeneudo emotions ", thousands of mammon*, troops being milialmieed in Oemsem, actually enting up Ueparation money. and the NM theetwee out of useful empleyment at home, eto, la, this results in keeping the pot boiling in :xtroi.e end if some adjustment is not offootegire, and not only lAtrove, are vould like to follow a policy e bound to suffer. formula hsa boor developed the :p of proteoting us from the verking I note that it 2> ;s be -.n sugeesteet in !merle& that our Lilted creditors raiso money to meet their ,emericon oulieetions by collecting and trensferrieg to us norican evel other Consign securities tow held* Lf thoughtfully coesideree the politice.1 :out financial their mitienuls. eifficulties not ottly to the ;Alice but to ourselven would shoe.. how frultleso ,kny return from wuuh v onaw.;.vor ou14.4. be. for of the Allied Governments are etronr enough to el-force such e mOunnre Old even with their best endeavor the return from each sou roes would be veeligible when compared Tith their total indebtedness, us in ()nob witein nay Uwe attempt to faros our Alius to reasonable future tins, they must t;e: this cash from Germany, in the other hand if Germany is to pap such tech to the Allies it roust be taken from monies ace:mini, thbugh either eireot or inuireot tribute tram the United. States, neutrel or Allied 'ewers. ',(3 are, therefore, in the position today of contributive substeJitial sums of move; to be plied in the Service of the bonds rand without exel reatitine benefits to oureelyee. Jo loee as we have no direct interest in Germue ReperLiion bends our influence in amelioreting the meesures taken by the ;alien to It meet to enforce Osman I-Away:nes is b000min6 weaker and cooker, admitted thet there is a erowine tendency on the pert of all our Allied creditors to reeerd with lose elet lose seriousness the °laic:Aloes of our I would not owoel the Alien' debt to us, nor, on the other locale to them. I would, Weever, hand, could I exiact them to oLncel Uermany's debt to them, endeavor to letteile the situation rwimaftele with the idea of Stiffening our time, meinteinieg our speolal position forei,/, loen position one, et tire: e of politioel, finereial end OuOnOmits influence. it; eopulek argument against our acemetaeou of lioperetion bonds from the ,'.111od Goverrelente in settlement of leemo hun been tVIt this would onbroil ue in etzropetul politics b.: involvieei us in miIitery tbe and other coercive measures &Against tiormary in enforoinv reepeents. ultimate means of eolleoting a debt, whether it be a debt oFed by Germaey Aliso are by the Allies to us, is force. to the Allies or a dent or reluctantly becoming convirued that force is fruitless of results with tit fer as the situation between Germeny and both we um the fAlles is vouLL not pursue euoh a line of action. than and ourselves is concerned thp;,t In accordance with my viee there, is, therefore, little it zaf ditforenoe ,lies, settlement to us nnU the Reparation in the position beteeen the settlement eith the rallies ami neither one nor the utoer hue uoro or less elerieets of eventuel diffioulty. I believe, an the other haed, zkett if we exchanged approximately tee of the demand notes of each of the principal Allied Goverements we now hole for t correspoudine equity in their share of Gormr.n Reparetion bonds, we v,oulu be in e bettor position finercially and politioally to exercise our influenoe, reettirine a bustresa-like treatment of tho general finanoiel situation and thus hasten the return to eeeeter pelitie1 and economic 1 eoulu not tees more than be, of emah of their astugi ohliGsstability. flans to us in Gorman paper as I believe it would be dosireble to have their Uirect ublietttion to us and the einunt of uerman paper reoeivea throegh theia oropoes1 I e. r see se advettejt me every disedvueUmder u equal in amount, toge is saltine the Allies to emrentee the German pvicr ttemeforre4 to us I roughly emtimute the :tnount of erne x eseer to be receiunder this 'ahem.. ved by us under this plea at e billion eoliars (or 20 billion 6o1d morko) , It would be advisable to ask the eritish ned rrerch voverreeets, men ti: king over any Germen paper from the, to herdle their It-ellen 44 in this plan. Deleian lame on the seee line es thet erepoeed or This proposal le suite in line vith the freeuent OM tn. .c CI, position of "according xactIr the same trt,Iwt to on of the flies as the l&tter :4ccorde to iorn;:inyw, iTiciGcutA.45, tto durinc, nt!Goti,,tions, we could Osinv,nd twree(Aa.ts lockinc to the roauctiou of Amiss of vocu,ction, -yrohibition of economic sm,ctions etc, general solution Fill it vlidch rirc no essential to $ of the ;Tohlem, .clio!th.- Alf! Imlue Of .:.eries " " teem Ear ie a "Ii" bones would be considerab4 Rtrens.thoned with resultinc benefits to the Jailed .corero, ArA-ExIP Accompanyirlz "Comraits on Treatment of our Prilniza_ 'jar Loans in Connection with the Lier,arx. e_e e follOzinc awane c t i on the "Se,hedile of Payments" hereto ReParati i Settlement" alligueuagjrag B OUTLIrE OF SCIEIM OF RZADJIBTLIENT 41 LOANS AND INPARAT ION szins "B" BONDS. (All figures approximate and expressed in dollars - 4 gold marks assumed for convenience as equalling 1 dollar. 000,000,'s omitted). II I Present Position Foxeign Loans and Series "B" bonds Foreign Loan s Foreign Loans Lent by III UNIT? S TATFB U.S. loan "B" bond "B" loax bond Position of loans and "B" bonds after re- adjustinuit as proposed accordance with % Agreement in Spa Protocol GREAT BRITAIN B B ritish IV Distribution of "B" bonds in Proposed. Re-Adjustmait in Column. II FRANCE French loan Loans rthl, Amount bond. gent by "B" bonds Pos it ion and amount .Amo wit United States 4504 4200 Great Britain U.S. 2100 2100 2100 3400 2200 France U.S. 1700 G.B. 1100 1700 2200 374 430 450 Belgium 36 84 18 Roumania U.S. (1) 187 1725 U.S2 215 187 G.B. M U.S. 1225 1725 84 5. H. S. U.S. 187 215 225 U.S. France ( 18 42 U.S ) ( 9 215 225 16 13 ), G.B. 42 42 (2) ( France 9 1.1... G.B. 8. 760 225 9 ), 617 1.5._ 10 4^ 42 42 G.B. 10. 950 ( 4E 2374 , France G.B. 52. 475 1225 G.B. U.S. 1100 1100 4940 Italy 1894 1700 1700 U'6 22. 2090 , 6.5 G.B. 133 G.B. (2) France 1 ) 482 5:7, T.J.;3, ( ) ) /-2 l',.3. ( ) ( :Portugal 60 G.B. 30 71 -2a 30 0.75 30 G.B. 41 2g61 1 00 100 Japan 71 ,> Totals 9758 5058 468 US G.B. %i; 4504 5254 France Leto (1) 3154 1904 234 500 nxillion dollars. -,,; 9500 (3) Italy's equity in "B" bonds is %;950, which is shown on this table as divided Agreement as to % to be accorded Roumania, (3) Schedule of PC.yinaits fixes "B"or 9 billion issile 38 billion go ld marks bone 71 ga 25 100 ce5254 234 equally between U.S. and G.B. (2) 0.75 4 y !, v 100 and other smaller Powers not yet determined - 6 1/20 however reserved by Sia Protocol to meet such claims. 100. 3154 234 U.S. G.B. France v 9500 (3) A. The Reparation Commission decided to grant to the German Government postponement of the instalments due on the 15th of January and a the 15th of February, 1922 (in su far as they are not covered by cash payments already made or which may be made, and by deliveries in kind and receipts under the reparation Revovery Acts, received or ..pith may be received up to the respective due dates) subject to the following conditions: a) During the period of provisional postponement the German Government shall pay, in approved forein currencies, the amount of millions of gold marks every ten days, the first payment being upon the 18th of January, 1924. b) The German Government shall, within a period of 15 days, submit to the Commission a scheme of budget and currency reform, with appropriate guaranties, as well as a complete programme of cash paymdnts and deliveries in kind for the year 1922. c) The period of provisional postponement shall end as soon as the Commission or the Allied Governments have taken a decision with regard to tie scheme and programme indicated in paragraph b. except and so far as may be otherwise provided in this decision, the difference between the amounts actually paid during the period of the provisional postponement and the sums due during the s..e period under the Schedule of Payments shall become due and payable within 15 days from the decision of the Reparation Commission cr of the Allied Governments, as the case may be. :Then the scheme and programme referred to above have been received by the separation Commission, they will be immediately transmitted by the Commission to the Allied Governments, who -ill thus be in a position either to deal with the matter themselves r to refer it bacl: to the Commission to be dealt with by the latter. Cannes, January 194k. G.Aki1/4k.z+ 3ON2I1rSTIAL. YR01;, 3IR qILLI,141 GOODE. AUSTRIA'S PUTURE LOAN. On the asenmption that Ell the Powers having liens on Austrian assets will, in the near future, agree to Postponement, discussions have been taking plsce in Vienna and elsewhere as to the loan or loans to Pe raised on the security of these assets. The majority of the soundest financial authorities in London and Vienna appesr to favour a relatively modest public lean, not to exceed five million sterling, to be raised trough British and iimericen issuing houses, possibly with the oo-operttion of other 'ropetn groups. The revenue from the 1.ustrien Customs would be the security for interest and smortisation. Lo difficulty would be experienced in arranging for a reoeivership, on behalf of the lenders, of the Justeme revenue or for such other reasonable supervision of Austria's firu noes as the lenders might consider vital to their interests, though in this connection the co-operation lf the League of Nations would probably be necessary and useful. The value of the Customs receipts would, under normal conditions, justify the issue of a larger loan than is suggested, but such well-informed authorities as the Governor of the Bank of England and Ur. Keynes stres:ay urge that the first loan should not exceed five million sterling. It has therefore been suggested that a further issue might later be made against the stuns security as and when, in the judgment of Trustees, the Customs receipts cover, say by four times, the additional interest and amortisation, with option to Austria to redeem the first loan within, say, two years. (There are those who elieve, notably Dr. Rosenberg, of the Anglo-Austrian Bank End recently iinancial Ldviser to the ;,ustrian Government, that 10 million sterling will sufficient to put Austria on her feet. be -2- S At a later date, thpt is to saw, when it has become possible to judge the effects of Austria's present internal policy and of the loans, it is Proposed to found a new Bank of Issue. It is reasonable to suppose that the groups undertaking the issue of the first Austrian loan mizht obtain, if they desired, the first opportunity to take part in this Bank, which should be lucrative. In the League of Nations' proposals last year it was suggewted that s Bank of Issue for stabilising the currency, with a capital of 100 million French francs and the exclusive privilege of issuing notes in :ustria for 25 years, should be the first step in financial reconstruction. since then, however, I think it has generally come to be admitted that it would be inadvisable to constitute the new Bank of Issue at the outset. It was also pro- posed by the League of t'Aions thnt foreign credits should be obtained not merely against the security of the Customs, but also against the Tobacco "onoplly, the State forests, with the additional security of a first mortgage against all private real estate in Austria representing 4 per cent of its pre-war value. This plan naturally envisaged a loan much larger than five million sterling. London bankers, however, are, so far as I have been able to ascertain, almost unanimous in the belief that Austria's first issue should be made against one specific security and that the temptation to raise a larger loan against a conglomeration of assets should be resisted in favour of a modest loan against a form of security with JIM which international bankers and publics are familiar. This question of a swan as opposed to a large loan raises the important point of repayment of the present and promised interim loans from lovernments. 3reat Britain has just given a credit of two million sterling on the understanding that it shall be paid back in one, or at the most, two years. The French and Italian Government credits, if they materialise, are likely to be on similar -6- t Aotual Receipts in 7%Iper Kronen (in millions) . ' 1 Equivalent if duties on cold parity basis (in millions) Rate fixed by lUnistarial Order .t which paper Kronen are accepted for Customs Sold dntico. 1920. Janury February Maroh April L:ty Juno July August 6eptember Ootober too' amber December 75 63 88.1 76.3 86,7 98.9 117 121.8 145 240.6 199.2 322 1627.? 12.5 10.5 13,7 X 6 (since 26.9.19) 13.2 4.9 5.8 4.8 5,7 X 20 (since 23.6.20) Y. 25 (since 6.8.20) 1 33 1/2 (sine. 26.10.20) 9 5,8 X 40 (since 1.12.20) 8 106.6 M11111IMM1 19E1. 465 449 654 784 756 714 9C8 907 1161 1578 1713 2135 4/11 9.3 0.9 9.3 9.8 7 6.9 9,P 7.3 7,7 7.9 7,7 E0 (since 1.1.21) X 70 (since 1.1.21) X V) (sine 11.4.21) 100 (VO) (since 1.5.21)x X 120 (150) (siLue 26.a.131)x 160 (200) (since 23.9.21)' X 300 (lance P7.11.21)x x 6.5 11Mb 12224 2434 7 Al 000" ebruar7, 1922, the rate hes been increased to 600. tirj, 19Z, the autq,1 gold parity "me 1:'.7o tim,7:4; per Krone. uree of the second column do not always represent tn. otient of sal; :.11 1 b; column 7. In Vile .';econd Jolnmn rtain reductions are made as not all .roods tre cAnrged with 71,D fall multiple of the third colurun, licher ..ultiple for luxurie4. zx tuanries paying tall loge.' multiple s,fter exchange rate. arrs4 ,ILLIAU NIDE. ( t klaionia-Dult ItZ.LlaaDING AL:illjAN VI SI? Ps t ponement of Lions. kj47 F 101ji.:.' L Lodge Resolution. The :Ado, Resolution, as passed by the enate (for teat see -nnex A) authorises the Secretary of the Treasury to extend for a period not to exceed 25 years the time of payment of the arincipal and interest of the Austrian (loot of 44,055,708.92 providing he satisfies himself that "substantially all" those other creditor nations mentioned in the Resolution have "substantially" taken action Similar to that outlined in the Lod,;(i Resolution. The Aesolution does not waive interest. the interest accrues. The Resolution includes no undertakin:, to postpone a possible claim by the United States for reparation. I discussed this point both at the State Department and at the Treasury and came to the conclusion that it had no practical or other importance as, if the existin; priorities re retained, no payments on account of reparation can be made to any country until the 20 years postponement of relief loans has expired. Procedure. Departmental views in ,;ashin,;ton as to what procedure should be taken after the Lod.") .resolution had been passed both by the Senate and the House, were indofinite. The Treasury seemed somewhat inclined to think that the United States oou/d not move until ,ustria had ,riven an assurance that all the other Powers had substantially a_;reed u?on unoonditional postponement for 20 years. I pointed out that in any event those assurances must first ue ,riven to the Reparation 0ommission who -lone .re entitled to release iustrian assets. rafter conversations with various officials in the State Department, all of whom showed the kindliest anxiety to expedite matters, I advised Ir. Proohnik, the Austrian ahare d'Affaires at Waehin:Aon, to write to the Secretary of State as soon as the Doke resolution had Passed the House and request ear17 action by the Secretary of the Treasury. I also advised :r. Proohnik to submit a list of those lowers that had already a .reed to postpone and to communicate the conditions of such postponement -2- S what the wishes of tae United 6tates were likely to Os re,;ardina a joint or other Trusteeship for the suspended lien interest and the new loans. I was told that no opinion Whatever could be expressed until the question was raised in more practical form, while no definite objection was expressed in Departmental circles to a Trustee bean; nominated by the League of aations, it was pointed out that it was quite impossible at the moment to say ahother or not the United .;tates would be agreeable to such a proposal. It was stk;i:ested oy a Senator who is in oloso touch with the administration and by several others that the possibility of any differen0 In views as to Trusteeship might be obviated if the Trustee were appointed by the : eparation Commission, in consultation with tae new immotazi lenders, and not by the League of Nations. It was emphasised that, in any oventaaustria's assets at the one of 205efirs would legally revert to the Aeparat ion Commission and that Trustee nominated by the League of L-tioas wealth do facto, only be Trustee on behalf of the Reparation Commission. I recommend the suaaestivi for careful considera- tion. It was, of course, recoanised that tho United Jtates could, if it 90 desired, appoint its own Trustee for its own suspended interest, for instance, the American ;.,linister in Vienna, but it was generally felt that a multiplication of Trustees would be unfortunate, particularly if new loans were to be partly subscribed by the american publics. Lae proposal to float such loans in the United states had the complete approval of the .ashin,ton administration. THE r . loraan's attitude, Discuseions reaarding the new loan are epitomized by my oablealess of i7th and :.;arch 22nd (Annexes 3 and U). Mere is no dauot in ',Ioraaa's mind as to their ability to sell half of a five million sterling loan for austria in the United States if they think it aise to do so. It was new and actually startling to them that Austria was in a position to :1164As an appeal to the public except ad miseridordissa Morgans, if they pursue the project, will desire to satisfy them- selves by investigation on the spot as to austria's ability eventually to beoome self-supportina. S !lor,ans did not feel that matters were sufficiently far advanced to eicouss details as to the term or interest and sinking fund of the loan. re;sards the Trusteaship, ,qiderson, of 2organs, offhand expressed the view that the appointment by the Lea,ue of 1:ations of a Trustee who would also be the nominee of the lenders would to acceotaele. closely. 3ut the moint Mal; not one into Mr. Lamont was of the ooinion that nothing more could be done until he arrived in Paris on ;.pril 15. I areed. Rumours that the ,:ustriam -cvern- ment were conducting other negotiations in London, of which I had not been notified, made it impossible for me to take any other course. If those rumours are confirmed Moryans, quite properly, will have nothinj more to do with any ,lustrien loan. Need of ProPlv4anda. 3Dth in New York and 'ashixigton I was advised by old friends uncon, netted with and even opposed to :organs that it was of the Jreatest importance to seoure :organ's influence for Austria's first attempt to establish credit in america. There Austria is regarded as a hopeless derelict. only news that appears in ?ractioally the metric:Ian newspapers about :--ustria refers to American relief work or to the hopeless condition of t e country. The report of the Finance Committee, on the strength of which the Senate unanimously approved the Lodge iiesolution, was based on a plea to avert starvation in Austria which ..vas described as being worse than ever. To correct such impressions suffi raise a loan, the biggest financial guns must obviously es brought into action. a co- operating force I have arranged with friends - editors of ]e ading news papers and those vko influence publicity - for the truth to be told to the iimerican public as to ustria's self-help proiramne and the steps she is taking to put her finanoial house in order. Hoover's Amerioan I have nlso asked the mana;ers of Mr. administration to make as much as possible of the fact that ionerican relief in Austria ceases on June 1st of this year. This 1-.111 visualise to the = merican public, perhaps better than anything else, that Lustria is no longer to be regarded as a destitute country. iislations with Other iankers. In my interviews with various bankers other than :.:or gans, for instance with Mr. Kahn and the other partners of Kann, Loeb and Company. I said that the conversations I had had in New York, although resultin; in nothing 0 -5- definite, had i-one sufficiently far to preclude me from disarming, at any rate for the present, the question of an Austrian loan. ty position with the ,.hieranty Trust Company was slijItly different, as the question of a loan hsd unofficially been discussed with their representatives in .eirope, but always on the underetandtag that they worked hand in ;love with liorgans. The 4aftranty Trust Comeany will, I think, desire to associate themselves with :.organs in the event of the latter firm issuing a loan. Governor Arong's Views. Governor 3enjamin :strong, of the Federal Reserve amnR, to Whom I _Ave ooeies o.z the memoranda handed to :10rLTMLS knnexes D and 1 and to whom I also showed the various cables received and sent, expressed his approval of ',merles* participation in an Austrian loan. reenrds tile question of Trusteeship, he took the view that there should be 1) A place for an American banker in the Trusteenhie in the event of the Trusteeship not being dependent on or involved with the League of Nations, Or 2) If the Trusteeship wore in the hands of the Lea_ue of Nations, that the ...,merican mixers interested should have a voice in the approval of the appointment. As regards the oropesed Austrian Sank of Issue, Gerernor Otron- was of the opinion that before the loan under discession Tee arraned, a scheme of control for svoh a Sunk., having reasonable autonomy, should be agreed between the austrian Government and the lenders. He ahared the view that the Sank of Issue should only be established as and When those concerned were Llreed, but laid stress upon the Cesirability of the glens for it bein:: arranged in advence, ear ticularly with as view to divorce the Government, so far as possible, frori the issue of ourrency. Governor :3trong also an ested the desirability of an uderstsndin: at an early stage between the lerilers of the new loan and the 3701tith, Czech, or other Governments Who miht have made interim advances to Austria, ties of their mspeotive loans. to the priori- His view was thet if Austria, at a later date, issued loans to pay off existing interim "'government credits, sich leans should be either wholly Government or wholly private loans and thDA in any event the arrange- manta for the repayment of these interim Government advances should be clearly defined before an ,merican house issued an .Alstrian loan. -6- 4-44(4-44. 13_ ...0011111 CONF!..9717:',!fikl, My :personal claivietion is thzIt tire; %.,.64.4,4 Delegation would with rectrd to the Gsret44-RusAlta kreeseat L4 aot other,wise than they htve done. It is ertainly 'wettable that pry thi theident the 001104 Oesferesee L&S beta disturbed aM Nobody ean regret this acre than the GOMA Delogatiust thasseives whisk 'Ant to Genoa In the ht;.e, and shish still bud*, that the acme -- se would brih a ateA) forward to a real Ate* sad to 4 reeonstruotiam cat the internttionai Iseunuaival Ate. Sat the fault of the Incident does sot is aita tae Geraau Delegata; it %la their duty [wards the Gyrate ke4i4ir t4 Q4bui410 the Ageoureato whom ttgeggrutsised that by 14sisti 4alux.44, time they would have been iliatiestea"" by tat unfair ,Tustedinsk ut the eta*, malamse. the Gers4a Goversaai.t Lad de/satiated lath the atasiaa re- :letztintutives aready for tevaral iwatits Mad hies o aegetiationo eels,* a few seek.. 440 betore iista.44 ihintersateep tu aaa louint %Mit au ftreemeat eia.id have !Idle teen hiYarij la artery tea *tidied giitA t4sn, shioh would the anise agoweneat as *44 LIWO Imes iton41W,ed in (ienoa. 1 hLv vers,:imelly octet*, oefet, I mane tu menus. tat, teat ot the itittnaud a4rfteaest asut des therefor* oft- tirn that it ourresca4s aarly la every said sita :As £teaaeat. bat the Gerson 44v caiikat sired to au/et* .Al lc tieaus. with ook/lettly tree fa.41.41 and strut to i,rei:dieso the Goa tereams by ooniel; lottorehuad tu 'Walk i.lth tear RU4LatA4116 they %hereto!. tAostvuo.4 the nttotiations hojas that la ;:ilt-m4a4 a genefel epee. sent with all sations scAuid be .3rrive4 4t, teuat the limes upon *Meta they kiwi stegotiatoi in her .in wan the hussies. this fast ;Awes/ that tat iiersaa aQvervatat ease ultra the best UMW). and to tho fairest sArit tu Genoa. did shut raong had intesaea t4 avoid. instead of *volts/ulna the 1101.14.tiuns in thm offish ei ftautleeicito !hen the killed tt. ale Germony I sudden1;1 nen4 below, wevoesersireisly received igformation that very seriuos negotiations were 40/441; GA at the Villa Grose. These were biu;le 2oarpariers, the' were official meiotisticus of the Delutites with exerts, intervreters, secretaries, rot4eois wad au on. The only preetisal differ.*** betmee View Ateertte mapHatton* sad those of the efficlul eohaissioa ,sta that aeraany was excluded free the former. the Oman Delegation have than on repeated ocoasions left no doubt that they would consider thtaSelves trim also to aet um their .art if these Wilt* wed 0A. hat me attention Imo uiven to these vestain;s. And Amp it betas. kTarant that tan itIterestb of tiermona- were not ,alif tailored blt serious4 prejndieed at these meetino, the Germ plele4atiou were obliccd to set. It may be thwt it was Rot the intention to sin tt Villa Croee a foraal agreonest. but if fill esuatries were utoreed at these megotiations Lad if slush ot;retement had thee bees oft/etally submitted to the official 9.,,)g4ission of the cLafsrenee, then saeh sn affreemtot mould have majority, etas earrled thz,Ja,.h by a great erhaA, P.caint the :,retest of Clerics& the great dtlager of tq4 14 ,.1,11t:. &la udreaseht .44 t4ut Germaki staid have bees stated to ai;ree that artisle 116 of ttle Prase treaty was officially emb)ilt;d in the 2.;;.!-eensiht tictNeca tue Raestarts and the 4Ulted. nany salad tliem have be &aged that .11 its sales to Rnseis were flat .41d bat 41.144 srt.,..ted reur- tier. eoscunt. Otrassy would Air . 10116 time hart loant imuable tQ &egotist* es a oosmereial basis with Russia, to Gi.tala for Ale sales to Russia raw styt erif:1 taxa so wL. 1110 1444:110.. Ulm Coss/salon wculd haw., sig;,2; ordered. Gersuay to nuke such and stash delverles to Russia. there would have been no yossibi- lity for aerecny to take part In the moonoalcal reevestrueitis of Russia as as equal 2sriner. The germs* 6.verasest 'mulct sevor have u ,reed to such result of the Genoa Coateresse, and as ttor, there was a great dakier tht:t slash a decision (meld be arrivtd at by a naj4rity or votes, as teseribed above, 4* were sla , obliged to set anti to eon. with Russia to um agreement on a fair and eluitable basis. As a natter of-f4et the Cerium-Russian Agroteasat ewes harm to nobody; quite to tic uoiarery it shows the only possible way is which the reeoustsuetva not wily of Russia, bka of the escsnosittal life of whole guro,14, is possible. Nobody will seriously believe that tieraany sill be able to ioay for reAration the sus whlan has berth fluid at the London Gonferenee. It will tnerefor, be all the bore ,is,o3sible that (erial :iv could, is aill4itioll, tai many mulls:41s Gi 40.4AU&Skil =rift' Lrtiele 110 to Raneia; vies tiaras nobody believes that RdiMiti will be able to pay Its ::re-wta. ,nu awl debt o the Uernan holders of botaU, to 4 the aerstia ..riperietors of ;;roirert in Russia and so on. It NbAS therefore rounnable to rewygnize Vase tsetse to el&:,ly bolus** thr! LAftwttitts und to sturt elvish; with fleas books. No business nen will tarry forwt.rd yeas alter year *lain* is his ipt;r4is of whiatz il', 14 sate tuat avt WI* .pessay wa tams will be paid; he Isl:' sik,ij lear the asevaate, Lad say should di;:lenates set otaerwise ? Our eoseetitors ooniIlalu of out eoc.otition is the oinrldbil strliet. hat we are obliged to work, to :podium and to ekl,ort as much as .01ussibic. It is oat Uhi4 shame, 1 if we get the possibi- lity to develop afresh war trade Altri Russia grftdually, which will reyul.ce 444QkisuU4 .4aumtlLies of ledustrial ,irt:tduets for its reuonstrdetioa, we 414u1 Java as outlet or our 1;rodution, In a aisestA shore 44 east iAu: la esshaao the raw eessary 1",,:x eateries ne- as, Knd the uosmi's mernet will taus be rellelmt for that extent trio* JUr 401404aiti01. Stit to be able, to c....uisenee se- riously waiter*. with Russia we had tirst te settle our aid se sounts avant* of ti;;.*a bAe war tlaea ttati to aitikee formally A/100 At4 Tbc.t Is the aiweat tit tit* u0V:10411e RU41:44A Ireaty. lA .bis t t t,w kl.,4mt:110 relation* Lt ws I:41W aosesestr4 to rvmpa di24J.14.,t4s reitlAkt. A V,it5 tv.A tc;k:e tot: etv. lk,h ss acvl 0;:t 4%;,i4.p1s la a steeests:r...i tualz fur t40 reds44*Strusilma JY Wist2k.as 5ue14 ;44144 kA oaeshat disorua- 4 The ttl* neltNreti IA tuct Iteiut nowadaiers and also t1,,;at C ucerA* ttel tc.,avertav41 atso tseta co.r4:1%;3 Nutt, i* 444i114,e ore 4bv:Iwttly a4t1'i. It is u aa;.3i;;ttt.Lt.:* 4iAo 1,0_1 f Tne CieS410 Lfe i_voLia*a 1144;AAce m4(.17 seratej4( A4 urcktseAt r u ,Ljc4t d,int the is twisatism. 400.4,04.4z sh-attitts all .1,44r1 z.ta Rugiult, in aerikus- LW" digrecaleat, 7;4Lt Js Irk/ 0014101111ft 0^ of 0100 h4d tO likes! Iwttuat, asttur tAua Lo oanrste ;-211Ithry aonventl,a. tale Idea. IS so absurd ;-t ryuilly mot be w hl :; ,,rit 1:.allag %1L 710,-p$ ftoae, emidtebeily j1,e4et4,,n m tt 44,4 4 0iILLtri re;-te 7, lir i sferted t,o kuit..0ii in letter - %I 4 s ill AL Paris, 18 rue de Tilsitt, *8 April, l92a, Subject: Impressions of the Genoa Conference, 14 dear Z.r. 3eoretarY, I arrived in lienow Thursday 4)ri1 20th, returning to Paris Vednesday April 26th, Past experience has convinced me that from five to six days at a stretch is the maximum time that one can work effecI plan returning for tively on an informal mission of this character. another short visit about ...ay 5th, if the Conference remains in session. ir. Child, the American Ambassador to Italy, who is at Genoa was extremely kind and in every possible way facilitated my work, The Department is fortunate in having this very able diplomat at Genoa at this time, :r. Child's agents are collecting and forwarding all Conference documents, and therefore it was unnecessary for me to even attempt to uuplicate this work which 2r. Child had so well in hand, At Genoa I found old friends of preceding Conferences of various nationalities who willingly expressed their impressions on the course and The situation as you will realise is kaleiconduct of the Conference. doscopic. Detailed reports of happenings are cabled to the American press by a varying staff of between twenty and forty American press correspondents in addition to other American "special writers" in Genoa, 'while many of the press reports are colored, nevertheless the important Notes have been cabled in their full text and through such Notes it is possible to follow quite accurately the course of the Conference, In view of the foregoing it is with hesitancy that I even venture expressing the following impressions qs I realise 'tat inevitable changes in national policies at Genoa may upset the very foundation upon thich my almises report must therefore be accepted with all reserve, are built. I came away from Genoa after this visit with the firm conviction that our Government had been extremely wise and farsighted in its determi;hile the nation to refrain from participation in this Conference, results of the Conference may be disappointing to certain Governmental heads now at Genoa, I am nevertheless constrained to believe that the results ,:ill not be entirely unfruitful, A. good airing of the burning questions now under consideration at Genoa while occasioning much hord4.1-01burning will, I believe, pave the way for later constructive work in which, in my humble opinion it would be advantageous for us to partiI feel that the impression undoubtedly created in America ik. cipate. the various happenings at Genoa will undoubtedly stimulate the feeling that Genoa is a sort of "oess-pool of political intrigues", Lachiavelian 41111111 machinations, etc. This impression should not be accepted ithout great resefve, Is a matter of fact, while there are undoubtedly certain -aehiavelian type of gentlemen at Genoa, I can only think of a most restricted number efficient on these lines, Of this number the majority are Bolsheviks, '.ith perhaps only one or tuo outside such ranks. By far the great majority of the members of the conference are men of high purpose rho are honestly endeavoring, so far as their nationalistic lights will permit, to better the general aurojaan situation. They are however nervous and ever-trained, and on this a000unt quite frequently give the wrong impression of aachiavelian tendencies. The York of the Conference is divided into five broad classes: A - B C - - A - a, - ton-Aggression. Finance. Lconomics. Transport, Russia, The eork of each one of the foregoing classes is confided to a Committee (often assisted by sub- Committees) Who are charged with drafting resolutions for presentation and formal adoption of the Conference in plenaie session. The work of each one of these Committees and suggested forms of resolution as a basis for discussion had been drawn up by Allied representatives who met in London some weeks ago to draw up the Program. This Committee has practically completed its work and - FINANC:a its report has been published, The report is quite academic in character and contains much sound advice, It has been carefully draftea so as to steer clear ao far as possible of debatable premises concerning reparations Its erincipal recommendation, which I hold to be consand foreign loans, tructive, is the proposal for an early meeting of representatives of I hope that our Government will participate in such meetings central Banks. and Rill be represented, if only unofficially, by the best talent re have I do not make this observation from any altruistic motive. in such affairs. In view of our special position as regards our gold holaings and related currency position, we have a most decided practical national interest in meetings of this character, and in my opinion it is incumbent upon us to adequately protect ourselves by representation. The cork of this Committee had not reaohed its final - JCiEfIJOS, stage 'hen I left Genoa, From what I gathered the same considerations as to non inferences of the foreign loan and reparation features ill hold surmise is that the in the final draft as rith the Finance resolution, final resolution will also be highly academic in character containing much sound economic advice together with an elaboration of the so-called Ter It will not be harmful, though eulen or other well known credit plan. I doubt if it will give any material result. B - TRa6PIRT. The a rk of this Committee has not yet reached its final It is largely, not exclusively, concerned in considering recommendations of the previous Barcelona and .Norte -Rosa Conferences, These two Conferences were called for the purpose of simpljtfying and expediting passenger and freight transport in Lairope. The auestions treated are technical in character, This Committee has encountered some difficulties as the secretarial work was not well done. In addition some political considerations have crept in which are giving trouble. However all are hopeful of a final resolution being adopted leading to immediate ratification on the substantial lines of the Barceloaa and Torte -Nora findings, From a practical point of view the eork of this Committee is of a most constructive order. C stage. D - tUb31i, s you know, this question is the one most difficult of solution at Genoa. I am still of the opinion that it was dangerous to convoke the Russians at Genoa. However they arrived duly primed for a "gallery play". Their Delegation was at first quartered some miles outside the city but are now installed in one of the large hotels in the center of Sham. The impression I gathered is as follows, ?he Bolshevik leaders fully recognise that the internal situation of _.cassia is about as bad as it can be and that therefore their own position and possible existence is becoming precarious. They must maintain "communistic ideas" but at the same time they require "political or bourgeoisie support"; the latter preferably in the shape of straight loans to the Bolshevik Government but this being admittedly impossible then other forms of It is apparent that they would be extremely reluctant outside support. to quit Genoa without having arranged for the de jure recognition of their Government together eith some adopted scheme of financial add economic They must also return to oscow with exchange with the outside rorld. The real question as much additional "window trimming" as possible. therefore resolves itself into one of how far they must go in compromising their position on eamauniem to get this support. Lloyd George inclines to the It is generally assamed that de jure recognition of the Bolshevik Government and that he will use his influence to this end provided he can get what he considers the best possible compromise out of the Russians. alr, Lloyd George's reasons for this are well known to you and need not be elaborated herein. It is not yet clear hog far the others will follow him, though my 'impression is that if nothing untoward happens he vill get a considerable, if not unanimous, following. A pure guess on me part as to the outcome is the folloving. So far as the position of Russia's debts is concerned, the Bolsheviks will agree to the recognition of such debts in exchange for the Allies agreeing to a long postponement of date of payment, a possible writing (Lawn of certain portions of the debt, together with cancellation or long deferred This is largely political eyewash, but it is adjustment of interest. good practical politics from the home consupptian point of view, both of allies and Russians. So far as the re-establishing of foreign business in RUSSIA is concernea, the Bolsheviks still maintain their nationalisation (or, in other vords, confiscation) ideas for practically all importent induStries as well as an absolute governmental control of exports. For this reason it will be difficult, if not impossible, to reach any trade agreements at Genoa at this time. ay impression is that ar, Lloyd George will endeavor to overcome this by ignoring such confiscatory acts on the broad grounds that "internal economic arrangements in Russia are the affair exclusively of the huasian people", ..11erefore, to avoid commiting ,toutside nations to the laussian thesis, the agreement with the Russians will simply set up the fundamental machinery upon which each individual outside It will provide Power may itself base its economic relation t ith Russia. that aussia effects a judicial procedure 2nd machinery necessary for the protection of the personal rights and liberty of foreigners engaged in economic putsuits within Russia together with some broad provisions for the It is assumed that the protection of aroperty rights of foreigners, agreement will contemplate the setting up of courts, with neutral judges sitting with aussian judges which, while operating under F.ussian procedure, would nevertheless assure a certain justice in juridical determinations It would then naturally follow that by concerning foreigners,in Russia. means of independent trade arrangements effected between indifidual Powers and Russia it would be possible to gradually force the Russians to depart The agreement will also doubtless provide for from their radical views. the setting up of the "International Corporation" for the extension of The plan of this Corporation exists today and has credits to aussia. doubtless been forwarded to the Department by ar, Child. Briefly it is a sort of parent Corporation with headquarters in London under the leadership of Ahich each of the Lowers, if it so desires, may themselves set up In accordance with a special organization to handle their ova credits. my understanding the financial support of the parent company today has been agreed to by Great Britain and Belgium, ether Powers will undoubtedly collaborate in its financial support, though this is not altogether clear, The provision for the organization of the International Corporation does It is not a pertioulerl; sound business phase not impress me very much. in its present shape. I believe it has been framed largely for the purpose of eyewash and so as to give the Russians something to carry back I may be mistaken but I to their public opinion as an acuomplishment. doubt if in the long run any substaetial sums of money will be practically forthcoming to meet any comprehensive economic operation under this plan, I would also surmise that the final ae_reement with Russia would contain a provision for the setting up of a small Committee of representaBeing rather of a tives of foreign Powers to handle Russian affairs, suspicious nature, I might even suspect a desire to use the administrative organization of the so-called international Corporation for this purpose, t ough I may be completely wrong in this aarticular. ie situation with regard to :cassia is changing every minute, It gill undoubtedly be largely clearea up even before this letter reaches I can only give impressions of the minute, you. I was considerably embarrassed during my visit at ,ren0E. to -5- receive an unexpected visit of ar, Krassin to n room at the hotel. He was accompanied ba an indiscreet friend of mine who remained during the whole course of his conversation. I vas embarrassed but had no other alternative tlan listen. I told Kraesin and my friend that if Krusein or he were to say tht;t they had seen me I would deny it, and that he was at liberty to take the same action in the event I made any reference to his conversation. Xrassin agreed and I have no reason to expect bad faith of his part. As a matter of fact he can have nothing to say as I kept my mouth shut. Under seal of confidence he handed me the Enclosure A. Which, while not comprehensive, nevertheless indicates the general lines of the then Bolshevik position concerning foreign trade. His conversation was only concerned in an elaboration of the ideas expressed in the enclosure so it is unneoessara to go further into it here. Kraasin however in conversation did compare the present Bolshevki regime with the recenstructioa regime following the French revolution, ;Alb only half heartedly presented the nationalization idea explaining that this was only a transitory reconstruction phase of tae revolution, that obviously foreigners would be reluctant to participate in Russian reconstruction on this basis and that the aussians could be expected to uradually make further radical departures from their present theory of aovernment and personal and property rights. As an instance of the possibilities in this direction, he stateu specifically that the Harvester Company and the c.estinghouse Company had both quite recently effected aith the Bolshevik Government under which their properties in Russia have virtually been returned to them in their entirety. He admitted that similar concessions could be made forthcoming b, direct negotiation with the Bolshevik Government. s. - R44 AGGHLSSIali, Me position of this question is conflated at the present time due to the Anglo-French misunderstandings. However all with whom I talked in Genoa fully realized the very bad impression generally created throughout t!,e rorld by the Genoa Conference and that the aor-Aggression P ast of agreement was the best possible way of restoring confidence and leaving a "good taste" in the mouth of the world at large. I am inclined to believe that if the Conference noes not abruptly close that a formula of lon-Aggression will be found and adopted at aenoa. It will necessarily contain certain reserves but all with whom I talked appreciated its importance and I believe all would go more than half way to meet on a common agreement on this account, All appreciate t,,e important bearing on American public opinion of a favorable determination on this question. The Russo-German Treaty, This occasioned a quite critical incident. I enclose herewith, as axhibit 13, a statement of the (Armen position which was handed me quite informally by one of the German representatives at Genoa, and which I am quite certain had hathenauls O.K. before being passed on to me, The Treaty is now lainis examined here in Paris by the Legal berries of the separation Commission for the purpose of determining whether or not it I an informed that contravenes time provisions of the Versailles areaty, while their inquiry is not as yet complete, there nevertheless appears unanimity in the opinion that it does not contravene the provisions of the 'Referred t in,,let. ter of ZINUMMAIL AR4+ 3 '='3121L UNKAAJOIL JAWAL LttLtt TI UAL -uLne AtA send 7th 1922, Meeting 01)02104 at ii a.m, Louis -xipois (chain:on) in 08 Chair. 2W.J4NTi',Ar John BRADBURY and Mr. KJAB,LL.AOK (United Kin ,tor. I.. Louie LUBOIS Manolere (irmee) The Marquis saircro R-GGI and Signor d'AMELIO (Italy/ D./LACROIX and RaidlidAJ (Belgium) Attended uaoffloially: BOYD.14 and Mr. LOGAZ united The following were in ...ttendanoe: Ur. SALMI, General oeoretury. tatea of mtrio4). ) -234 2he Chairman Delacroix Our oolleuizue, tee of Ixperts. whose Chaim= ban, on behalf of the Commit eels ion Commies ion interpreted its T ha La ea4ced hOW the of arril 4th 7ith in via Loh it had entrusted this Committee upon the 00 Marini': ancl smicing a report the duty of cons (Attune trader -.711 ich the German ai At Gmiemmenti"in v1017 of Treaty of 4.ts oblitions as t eats are definod by the Schedule of Psynants 7arsafties sal in particular, try the the pro woods of of ,',:ay 5th 1(.21" roPmtiate loans abroad redemption of a which would be applied to th o part of the oapit al rep &ration debt. to Ole tads of this docis ion do not svpoar 4. to art' dotzt. They can only be intmonreted transmitted by the the saute defino0 in the lraft re oly ma to -ee optai in Preach S: °legate, to his colleagues 1.0. 5. "The loans must have the result of facilitating In particular, the Gaimetwa fulfilment of her obli;ations. should !,ive its aossnisslon would agme that the ,:ors it '.ee should opinion on the manner in tthioh the pram& of the loan obligations, anii, if be applied to aoquittire Crermanye oo ass ion [cos e, on t he mod if Lc at I ons for the anent-eiaort 6, the h w ould !vault of th is it enmities". *Bat a reduction of Janssen obligations themselves 3ch.edu1e as these result from the Treaty of Peal* and the of :arrunts must be neither ons of the logo nor its risuit. the sedition of NM, 3 - 4 - -40 Sir John Bradbury indie.ted the principal points the jonyittee was to direot its attention : The conditions, 2uarentees, control, U. to which ,.mounts, etc. This draft raised difficulties .enonget the members of the 1/4;omrniesic.m, ern ,nd it was only on 4th, after semi -official or =official discussion that the final decision was taken which instituted tho of ..,xleirrts. expert Ammittee tiaL This cleats ion r:,n as follows Committee would he .mointed to consider Ind port to the ,.;orenissicm on the ooneitions under Gorman Government, rei;erd being had to re- which the its obligations under the Treaty of Versailles, and in particular under the 1.ichedule of Payments on ',ley bth 1e21, should raise foreign loans to be Applied to the reduction in part of the capital of the lisp aret ion eon:lesion 12. ihbt. There then follows India .tions to those in 'Ar John similar re.eburyge draft as to the means, conditions, rearrsitees, control, etc. This decision 12. differs ;rohn Bradburys draft owing to the "regard essentially from .31r addition to the words s wine had. to its obliations under the Treaty of Versailles and in particul_r under the .chedule of Payments of Lay bth 1921. 13. These words were introduced in the request of the french Delegate In order to possibility of the question of the debt being, raised by the text at the prevent the reduction of the German LApert Committee. if, therefore, in order to reply to the :.went ion raised by the Com .ittee -0 - 6 - Sir John Bradbury stated that when he agreed to the insertion in the terms of reference to the limitntive words to which the Chairman had referre.1 hPd taken the object of thorn to be to prevent the Coadssion beinc in any way committed to taking into consideration any suggestions which might be made for modifying the obligations of Germen:7 under the Schedule' of 2ayments. Ho had not contempleted thet they would be held to preclude the Committee from discussing end commenting upon any mattere whieh the loalitee itself mieht reeerd rs relevant to the eubject -4eatter of its oneniry. The Committee hfd, however, now informed the Commission, through Lensiour nelaceole, thrt in Its ()minion no proerees was possible 'unless the field of Its eneniry ee-eld be extended in the manner indicated. It r7yeeeed to John Ilnedbury thet whetever might hemp been the precise intentions of the Members of the Commission in introducing and accepting tee limiteive ;_erde, the eiteeetion which had row erisen wes one which must be considered on its morite. Admitting, for the perpeee of ereument, that the terms of reference as they stood forbaue the Committee tc extend their enquiry in the manner desired it was clearly open to Comeisnion, if it saw fit, to remove the restriction. Vcio If the Commission decided that it was desirable to remove, the rostria- tior whether it proceeded by the method of iuterpreting or by that of amending the original terms of reference was not a question of any reel importance. The French Deleente had stated that France could not accept a reduction of the debt owing to hor by Germeny except es part of a eenerel readjustment of international indebtednees. Sir John Bradbury was entirely of L. Dubois's opinion that no economic resettleelent of the world is possible without such -40 general readjustment. But he was Aually convinced that until a provisional understanding had been reached in regard to German reparations no basis for disoussilv; alLoli a general re- adjustment existed. It was an illusion to supuose that Great Britain was anxious to secure advantages for Germany by means of the reduction of any enforce:ble ?Tench claim against Germany - t still greater illusion to suppose that GreL-t Britain Was willing lo pay far such e favour to Germany either by reducing her own reparation claim or by writing down the d3bt owing to her by Zrc-nco. Great Britain was anxious not only that 14rance should recover from Germany - but the:, she aerlelf should recover from Germany - the maximum amount which it is materially pos3ible to make her pay. She believed, however, th-t the German debt as it stands under the Treaty and the 3che(lule of Payments was to a_ large extent a 'pad debt and in fact irrecoverable, and that attempts to enforce it in its entirety would merely hEve the result of destroying the social End economic fabric of Germany and so ulti:%stely making irrecoverable even that part of it which, with a more moderate policy, could undoubtedly be collected. It had become obvious thnt wi.thout a foreign loan lermanylg even given good intr.ntions, would be able to restore order in her internal finances with dif!i:lty if Pt rl', even if she were relieved entirely for a considerable period from reparation payments. It was probably - but it was n poi-t on which he awaited the opinion o. the Loan Committee - that so long as the Schedule of payments demtnds were maintained as an unalterable obligation the basis of creeit nececeary to enable Germany to raise a foreign 1111 portionate indulgence from their own creditors. Sir John Bradbury was not in a position to say what concessions if any could be granted by Crest Britein in respect of the French debt, still loss whether any could be granted by America either to France or to Groat Britain, but it was obvious that if a practical solution of the German reparation obligation were in eight and required only conceosions on the part of Great Britain and America to make it eccepteble by France, these countries would incur a heavy responsibility at the bar of history if they were to displey lees consideration to their Ally then that Ally herself was prepared to show to the beaten enemy. But before any basis could exist for determining what eacrifices ought to be asked from Great Britain or America, it was necessary to determine how much could bo ex-rEcted from Germany. If there were a reasonable probability 'of securing the whole 80 milliard of gold merks - the present value on sanguine estimate cf the obligations imposed by the Schedule of 2a-dents - the question of reduction or cancellation of Interalliod indebtedness mioht not arise at ell. Concessions which would ba appropriate to a halving of this debt would be inappropriate to reduction of it by a third or by two-thirds. Further, the atmosphere for the m'ent of concessions t all could not be expected to be favourable until it is clear that the concessions if granted will repult in a settlement of the whole proble'n. I vould serve no useful purpose, even if it wore practi- cable, to reCuce the Ferman liability by en arbitrary amount and inter-allied indebtedness by an arbitrary percentage, if there wore no better security for the recovery of the reduced amount than for the recovery of the present debt. the inter-allied debts had to be considered. Me statements xthich they had jat heard showed that all the Dole gat es were unanimous cal the connection between reparation and the inter-allied debts, 821:1 it4raa to be hoped that this coo/Action would allow the french relai;ate to aiee with the opinion of his colleagues. As a result of tills unanimity a positive opinion would be obtained from the Committee which, if this we re not the case, would probably limit itself to stating; the impossibility of placing a German loan abroad, which rx)uld entail a situation, the gravity of which it was unnecessary to point out both to Oen:law and to the Allies. S 5. It. DELECROLX then rack the following stet ement:- "If I had considered t.t ref:lest add-imaged by the Cormitteo of .Janicors to the eeparati manoeuvre wains t oonInissi on, a daqeorous ranee late naed to nrii'm the international loan dopendant on a fresh reduction of her credit, I should have refused to be its bearer. But I think that I can state that the i3ankers2 opinion lip flee from my .artisan spirit. After an =dna ite a vie VS during six meetings, thsy nave, for various reasons, come to the unanimous conclusion that a limited loan, even if :7011 secured, woulr3 have no chame of interesting the international investor, if it did not aiTear to be a stags termini, a general solution of the .separation p roblom ',Lich is ovpres Sing AU1)113 Having leached this oonclusi eh, too 1i/embers of the Oemmittee have dear-rue themselves disposed, if teey were not open to aritioism -'or 'faring exe,:edad the strict terns of .heir to push their examination further ax":. to contemplate al 1. tho c onn iti ens I/11111°1a the I sane o f f ore i "pi Gerrie= I oans might Lemani without exeludink; those necessary for the re-establish runt of '_;erreargrt.9 oredit abroad. In doing so the Committee ila a no intentioa of enaroonhin; on the pswers of the sparatieu Commissior., nor on those of the Governnants, but on1,7 of 0- Tir-C tier! WWI(' e rrhic h mtr;ht wirer) as a point of deperture for an oxcha Ego of opinions between them an' mipeit doubtlese inbrez.-ise the possibility of the issu) o f a loan by 'Amity. 'ills is the meaning which the British Delos ate atiribu.tes to tee request of the Bankers' Committee; he has stated that their opinion mizLiit be the starting point of a sue 0 OR sful at tempt to bring the raper ati on question on to the ,ash of S practical reLlisation, and to consider the Whole of the problem of the Inter.Alliei debts, adding that without this necessary prelirhinary startilks-point, the consideration of the problem of Inter-Allied debts would be inevitably continually adjourned. In these circumstanoes it appears to me impossible to adopt an interpretation Whieh would have the effect in fllerica of enoeuragin6. the opinion that we have, even without in any way binding the resnonsibility of the iieparation Commission and of the Allied Governments. refused the opinion Of experts ,even on purely banking grounds" 6. Mr. BOY) If made the billowing statement: mWhile I have always recmrded the rrinAnte of the Loan Committee as instructive, and felt that only a nejative answer would be possible under its terms, I have tm always expected that if this proved to be the ease, the Commission would be glad to receive saamtions from the Committee as to any chan:ses in conditions which, in their juk;ement, would mate a loan possible. lay personal jud:ment is therefore that the Committee should now be 4ven liberty to make such waguestions. As my colleaoies have indicated that in their minds there is a close relation between chen,;es in Germany's indemnity oblitLIstions and the Inter-Allied debt, I mast add that this subject is not within my competence. The Inter - Allied debt has already been the subject of legislative action by the United States Congress, and a committee appointea under that lejelation is alone oompetent to deal with it. I am of opinion that any emphasis on a possible relation between the two subjects is likely to make more difficult the result which seems to be hoped for. I note that the Cleclaration or the French Delegate contains a just appreciation of this point of view. I will further udd that personally I have never seen any connection between the two matters. No one is likely to ma_;est that Jemmy should be relieved of any obliLation which she can reasonably meet. The only effect of a chan;e in the indemnity will, therefore, ue to increase not to diminish the amounts likely to be received from Germany. I feel that the Allies have already lost considerable sums which under a different policy mijit have been obtained from Germany, and that more will be lost unless the policy is chased. If this opinion is well founded, the changes likely to be suLrested cannot result in any sacrifice by any - 'over." Sir John 3ILD3URY then proposed the followin, 7. resolution: - "The Commission intends that nothing in the terms of reference should be held to preclude the Committee from examining any of the conditions which may be necessary for the raising of external loans by Germany, including_: such as relate to the general re-establishment of her external credit. Indeed, any suggestion which the Committee may be able to offer fro this point of view, without of course erkAging the responsibility of the Commission, could not fail to be of the greatest value." 8. The Jormission decided in favour of this resolution by a majority, :sir John BEZBURYi Signor d'alLIO and DSLACBOIX voting in favour and I. Louis DUBOIS against. Yas. BOYDOT expressed his personal a,meoment with the majority. 9. The CHAIRLIAN expresso d his regret at being =able to associate himself with his colleal;uest opinion because a careful study of the question oblirpl him to maintain the orinion whieh ho had expressed at the first reetir; at which the question had been dealt with. 10. He added that the Committee was none the less at perfect liberty to take account of the majority vote to continue its studies on a wider scope, the CHAIR,IiiI bein convinced that the Committee would do so with all the necessary discretion. 11. The Meeting rose at 12 noon on June 7th. REPORT OF THE LOAN C CILIITTEE (2) (3) --The manner in which-the -revenues-and other assets -ass iEned. to-the- service - of -the loans sheald-be - - controlled and administered and the relations to be established as between the German Government, the representatives of the lenders and the Reparation Commission. The-Committee was instructed to consult with persons having practical experience in connection with the issue of Government loans in New York, London, Paris, Rome and Brussels, Amste dam, Berne, Berlin and elsewhere, with a view to the formation of a pra ctical plan to be submitted f or the approval of the German Government and the Reparation Commiss The Committee, after considering these terms in both texts ( which they wore informed wore e qually authoritative ) felt some doubt as to their scope. Un June 1st they therefore addressed the following question to , he Reparation Commission : "Acting on your instructions the Committee have commenced the study of the subject of a foreign loan entrusted to it by the Commission. Before proceeding farther, however, the Uo.I:iittee consider it necessary to ask tie Reparation Commission whether the words "regard being had to its obligations under the Treaty of Versailles and in particular under the cnedule of "en ltetat Pevments of May 5th 1921", (French text: de ses obligations telles qui elles sont definies par le Traits de Versailles et on particulier par 1'Etat des Paiements du 5 I4ai 1921" ) are to be interpreted as meaning that for the purpose of its deliberations, t he Committee must treat the payments prescribed by the echedule of Payments as an unaltef.able obligation, subject only to the power of the Reparation Commission from tine to t line in the f.ature to vary them in accordance with the provis ions of Art. 234 of the Treaty or whether ( without of course in any ay engaging the responsibility of the Commission ) they are at liberty to examine the possibilities of s olutions involving modifications of these arrangements." (3) ( 4 ) (5) (6) (7) (10) (11) 0 )13) einally, the Committee desire to point out that in the meantime, and even during the interval between such a renewed invitation and the conclusion o subseq-uent negotiations, Germttnyls financial position may obvio sly be threatened with serious dcmzer. Protracted negotiations for a large and long -toppled loan might mature too late if not preceded by mediate help. But if the problem ..ttte con- sidered anew in the improved circumtences sggeLted, and with a real prospect of an ultimqte setlemeuto ti e Committee fe(A. tirAt the obstacles which at -xesf:nt confront an interim loan rould probably riot prove to be insuperable. with real bore of n definite settlement within a reasonable period it would he much easier to arrange a shorterterm secured loan sufficient to serve German c-2edit Pram collapse during the period of neLotitione Comnittee need scarcely add tht they would be glad under these conditions to give an7 assistance in their power in regard to such a limited loan as well as in regard to larser and more important problem. (Signed) Leon DELACROIX M. DIAMELIO J.P.MORGAN R.M.KINDERSLEY F.VISSEPING C. BERGMANN June 10th 1922. monsieur Sergent is unable to associato himeolf with the above conclualons and with._ some of the statements or sug3.estions contained In the pro.ent report. Reforrin:r to the numerous remarks :lade by him in the course of the Condittiee's dellbetions, he nakes the general statement that ho cannot, in order to promote a loan, S REPARATION COLILISHION. 14th June, 1922. Pram: The Reparation Commission. To: The German Government. In its letter of the 31st May 1922, to the Chancellor, the Reparation Commission stated that several points in the Chancellor's latter of the 28th May required further elucidation, and that a farther communication dealing with matters still outstanding would be addressed to the Chancellor at an early date. Accordingly, the Commission has the honour to make the following communication to the German Government. It has already been settled that the details of the arrangements proposed for dealing with the followin;; questions will be the subject of deliberations with the Committee of Guarantees: - (1) Supervision of the receipts and expenditure of the Reich. (2) Abusive axport of Capital. (3) Statistics. The Commission will accordingly await the result of the deliberations of the Committee of Guarantees with the German Government on these points. Apart from these questions, there remain the followin; matters still to be dealt with: Forced Loan: The Commission has the honor to acknowled03 the re- ceipt of the Chancellor's letter of the 30th laly. The Commission understands that all arrangements will be made in due time for the receipts collected in this respect before January 1, 1923, to reach the / minimum figure of 40 milliards. Deficit of Public Service Budgets: The Commission wishes to point out that the draft budget submitted to it makes no provision for sulplementary receipts to cover the deficit in the public services. It is true that in the Chancellor's letter of the 28th May, the -2- I -3- It attaches much Ladortance to this and indeed would prefer to see the veto confined to the selection of the Chairman un- 1 y. The Commission is further of opinion that the Chairman should invariably be selected from the existing members of the Board of Direction. The provisions of the new Law are not very clear in these respects, and the Commission would be clad to receive from the German Government an assurance that they will be applied in the manner indicated above. Further, as regards the remuneration of the Personnel of the Bank, all questions of the salaries to be given to individuals should be left to the shareholders' representatives. While the Commission does not insist on the immediate introduction of a further law to place these points beyond doubt if the German Government will undertake that the existing law will be applied administratively in such a way that the objects which the Commission has in view are secured, it reserves the ri,;ht to ask for further legis- lation should experience show it to be necessary. The independence of the Reichsbank, however, even when made complete in the manner above indicated will only be of practical utility for the purpose of safeguarding German currency and credit, if it can be effectively used to secure that loans by the Reiohsbank to the Government are made only in accordance with sound banking principles. So lon,.; as the Reichsbank is permitted to issue notes against Treasury Bills an effective exercise of its autonomy in this connection can scarcely be looked for. The Commission recognises that any limitation of the fiduciary circulation must be preceded by the covering of the public expenditure by real receipts from taxation or internal loans without recourse to the issue of Treasury Bills discounted directly or indirectly by the Reiohsbank, and that it would be premature at the present moment to attempt to reestablish purely and simply the limitation of the note issue abolitihed by the Laws which have been voted since 1914 in amend- ment of the Law of 1875, without having first put the State finances -4- But the Commission is of opinion that the flerman in order. Avornment should forthwith take in hand the preparation of the to measures which will have to be introduced at a later stage re-ectc:blish r,asonable liAitation of the right of issue of the Bank, and that it should set itself resolutely tc the task of applying them proressively as soon and as quickl' as circumstances permit. Failing such action, there is great dan:;er that the sacrifices which the German people are bein7 called upon to make to check the expansion of the floating debt will fail to realise the end in view. (Signed) DUBOIS John BRtJ BURY Leon DAIACROIX SALTO° RAGGI. iar 41 C.G, SUbject Index 444. , PARIS Document 923. August lt 1922. 001XIITTEL OF GUAI?AnnZS, Intelligence Service. ThE GIRLiAN L:011ANGES DURING TUT. FIRST ':E.EK OF AUGUST 1922. I. THE 3ERLIN EXCHANGE DURING Ti E ViEEK LNDING AUGUST 6 1922, The disastrous depreciation of the mark continued at a constantly increasing rate;during the first week of August; "Industrie und Handele Zeitung" attributes this fact to the maintenance, or aggravation of the "destructive reparation policy" carried on by France. The request that the monthly ca.pensation payments be reduced from 2 million pounds to 0.5 million pounds was brutally rejected by the French Government; tha latter threatened to take penal measures in case of non-payment; the mark fell in consequence to 0.111 cents at New York, ':which means a parity of 870 marks to the dollar. exceeded by accident; At Berlin, this rate was only the dollar always remained under 900 marks. On Thursday and Friday afternoon, a tendency towards buying was noted; foreign currencies fell slightly (the dollar fell to 720 marks), but on Saturday the market became firm once more, which was especially noteworthy at the end of the week. No appreciable fall in the rates of foreign exchange can therefore be expected during the coming week, The "Industrie und Handels Zeitung" expressed the fear that the new burdens might fall on German economic conditions, even were the scheme of the French Government to be mitigated considerably in the course of debate. A financial reform, which would not include a revision of the Peace Treaty; a Customs control, and the fact of allowing Germany's former enemies to take shares in German Com;anies, would, the ;vapor considers be susceptible of hastening the ruin of German economic life. The mere threat of such measures sent the dollar up in a few days from 600 to 900 marks, 17hereas it was quoted at 400 marks only a few weeks ago. With regard to the consequences of the new fall of the mark on German economic conditions, the paper considers that the full extent of these cannot yet be appreciated. Prices continue to rise daily, thereby PARIS Document 923 -2- sending up the costs of production, and the scale of wages; moreover the depreciation of the mark raises great anxiety concerning the sltuation of the money market, This situation gets worse week by week; the money shortage, and the shortage of credit, continue to exist. It has long been found impossible to procure the necessary credits to Compensate property estimated at a given value on the open market, which is now thrown on the German market, Inflation increases: the last balance sheet of the Reichsbank showed an enormous surplus of 15,7 milliard marks; yet this increase, which represents only about, 8% of the fiduciary issue, is insufficient for a period when the level. of exchange rates, and the goods depending thereon are raised by 50 or oven 100%. The increase in the number of banknotes in circulation always remains less than the increase in prides; if this fact is satisfactory fr= certain points of view, it emphasizes the money This money shortage is felt most on shortage to an alarming degree. the security market. The rise in the exchange rates during the past week had but small effect on the security rates, The paper notes that the average rates of securities are at present at the same level as they were at the beginning of the year, when the dollar was quoted at between 200 and 250 marks, The foreign exchange rates during the past week, were as follows 29.7 Amsterdam-Rotterdam Brussels-ntwerp Buenos-Aires Christiania . ***** a.a Copenhagen Stockholm Relsingtors. ........ 00.0.00 Italy ............. London New York Paris Switzerland lie**. Spain ........ . Vienna (German Austria) .4 Prague Budapest Bulgaria .. .. 367.50 a . ' o de Janeiro. . . 4,8 23,620.40 4,719,05 222,20 10,436.90 13,033,65 15,830,15 1,258,40 2,771.50 2,701.60 605,24 5,013,70 11,610.45 9,463.15. 1.402 1,423,20. 31,46 24,818,90 4,993,75 233,20 10,786,50 32,55925 6,49185 13,682.'85 18,227 15 22,072,35 1,802,70 3,765.25 3,755430 828 96 6,791.50 15,955,00 505.50 - n'i,-..4.:4. . V, . v .. vv 38 1,8 4.---- - . 16,679.10 1,328.30 2,921.30 2,856 40 643.19 5,293,35 12,259.65 9,987.50 307,60 14,53180 12,88385 29,363.25 5,902,60 276 65 12,933 80 16,304,50 19,675 -35 1,598,00 3,455 35 3,375,95 761,01 6,142,30 11,460.55 1.33 1,33 1,b3 1,578.00 31,bo 2,057,40 33 70 1,797,75 33,45 519.35 397.00 113.85 100,87 1. Paris Document 923. -4- THE INDEX NW: MRS OF GERMAN STOCK. III. 1021. 1 27.7. 311. 1.1 CommonJealth & Federal State 132.01 153.18 100 110.83 loans.. .. 98.92 100 90.70 Municipal loans 92.100 Provincial loans 100.72 93.51 ge cedules of German 99.24 100 103.5 99.59 ge banks 91.70 100 100.88 94.59 an mortgage cedules 100 99.46 107.10 rial bonds 101.76 Total 104.12 104.21 100 103.94 mber of stock changed very little by reason of the The total index number rose hown on the Exchange.. amely 0.:,17%1. as compared with the previous week, the occurred in the various categories: A. .. ge cedules of German ge banks ncial loans pal loans . .... .... rtgage cedules 3,2% t. rial bonds . wealth & Federated State 0.9 -. 0.4 1.5 -. - 0.7 3.1 ties rose, 45 fell and 7 remained stationary. F TIE FRANKFURT EiCHANGE ON ,d BUST 4 1922.. 1 9 2 1 1920 1 9 2 P eginning f Jan, Beginning of Jan. 10 Nov. 3 Jan.. 14,989. 40,250 33,442 849 902 632. 934 16,772 976 2,243 .390 43.469 1,816 36.160 28 4 July ,919 839 Aug. 40,586 44,792 1,017 1,046 7,875 10,265 49.478 56.603 ed coupons. s a basis on January 1 1921, the following figures 0 0 3.8. 1. 0 268 115 240 223 106 214 271 299 120 123 843 1.152 0 259 216 295 338 . Paris Document .923: The FrEtnhurt Exchange continued to harden during th,) past 7reek; the "Frankfurter Zeitung" (ik) 578 of 7.8;22) notes ho-:ever that the upward movement of shares 'Jas sloler than that of currencies in consequence of the shortage of money and credit. Only foreign loans were directly influenced by the ::ovement of currencies. 5 standard foreign loans gained 2,890 points in all. The Home loans gained 29 points; the Commonwealth 37 Loan in particular ilaproved by 35 points. The 25 standard classes of shares showed a surplus of 4,305 points; the "Harpener" gained 340 points, the Deutsche- Ubersee 760, the Ver. Glanzstoff 425 and the Baltimore Chic. an exchange value, 983 IDoints. (See Paris Document 902). During the early part of the Commission's recent visit to Berlin man Government stated its intention to present to the Commission a conert This intention was no precise project for the stabilization of the mark. ried out, and the Commission might, under ordinary circumstances, be justi. insisting that the initiative belonged to the German Government, and that y But the gravity of the Government should carry out its expressed intention. ent crisis, and the need for prompt action, have led the Commission to aortal& immediately the remarks of the German Government itself, and also the suggestie contained in the majority and minority reports of the economic and financial experts whom the German Government summoned from several different countries to advise it regarding the situation. There is no need for argument as to the necessity of stabilizing the mark. The German Government, its "L:xperts, and the Commission are in agreement on this point. All parties also agree that the mark can be stabilized. Further, the Commission agrees with the German Government and its Experts that the primary essential for stabilization of the mark is confidence -- eonfiIf this confidence be once deuce within Germany, confidence outside Germany. established, comparatively little money will be needed to stabilize the mark. If this confidence be not established, then stabilization cannot be effected. The Reparation Commiscion is prepared to do its full share towards estabOnly by so doing can it properly fulfill its obligation as lishing confidence. trustee for those countries interested in reparations, but it is glad to feel that this policy will contribute towards ends even more important than reparations. This declaration means that the Reparation Commission, within the limits of its powers, is prepared to ta7ie whatever decisions may, in its judgment, be necessary to restore confidence, and is also prepared, within the limits of propriety, to advise further action by the appropriate Governments, if such action seems to it necessary for the purpose in view. To make its thought still more clear, the Commission states flatly its recognition of the fact that demands, which are not properly adjusted to the capacity of a debtor, defeat their purpose by destroying credit and hope. Proper adjustment of demands upon a debtor involves the preservation of that debtor's incentive - self-interest - without which human effort, particularly the united effort of a nation, is impossible. In forming its judgment as to what is necessary, the Commission will at all times be ready to consider the views of the German Government, or of independent exports selected by the German Government. The foregoing declaration is subject to one condition, viz: that the German nation pledges itself to do its part towards restoration of confidence. For the Commission is firmly of the opinion that the most that the Allies can do is to remove obstructions. Germany's redemption will then depend on Germany Unless her national will is manifest in such a crisis as the present, herself. the difficulties in the way of her redemption are insuperable. This pledge should take the form of sore convincing expression of Gor-Mile it goes without saying that actual performance will many's national will. prove the most convincing expression of such a national will, the Commission believes that such an expression will go far on the one hand to create confilence -2- -111W".!"."C The Visserine- Dubois plan for tho stab /libation of the :el oher,ark way be ori ti al sed fry tho follow ing points Of v tec.9 t 1. If the syndicate formed by foreign tx:31k01%3 th the lei ohebank should try to raise the leiollemrk considerably above its preeent revel avid possibly above its present interral purohasine power then it viii-ht happen that the result of the transactions of the syndi oats vioul d be only transit° ry, after a short rise the mark veu3.d 11411 baok again and the flow spent by the forel/n synd Lento together with the arotvit of old staked by the Ileiehebank wield be lost in the transaction. To provide aminst such possibilities the syndioate on the other hand islOit ask for math seouriti es to be given by the Cr'eriesn Government that all important assets of the ;errain Government would be pleCed in favor of the ran-IAA:ate and prootioUly n,thing wcul d es left for the Re, arat ion. The snorer to such critioisin is the follo-Angs The foreign syndicate furnishes 800 million goldmarks, the Eiatchsbank furnishes the et no amount so t../at the oi:37e,-ate larnount at the disposal of the stabilisation syndicate should be one milliard midmost'. At the present ratio of 1800 to 2000 popermark to one ,,Assault, one milliard goldesarks in theory would be enough to buy 1500 to 2000 milliards of pioesnerks. a sun I'M& by fur surposies any ekiatirw wnount of pepanast-.. It is not proposed that the syndicate shorld begin Its Operations b; saltine foreign ezehenie on the German markets. On the contrary the efforts of ae syndicate Ntwild be conoentsated on foreto!), markets as new York, london, stertio,m, Zurich where the syndicate should proceed to buy ur itnul teneou sly all the fl on tin; material of paperrnarks . it is hardly hardly possible thut the nnounts of papermarke eVailable in foreign markets will aggregate anythirp., like 100 Therefore if the mnrk should not rise in con- millitrde. sequence of tho s-ndiwite operations, about So) goldmsrks would be sufficient to buy up the Iota. !amount of papermerke available in foroVm markets. if these EU million geldmarke 25 million would come from the foreign syndicate and 25 million from the Reiehsbenk. That would be the highest amount which the syndicate might poseiuly risk in the transaction. gut in pr12.atio things will develop quite differently. The combined efforts of the eyndioate to buy up maxim in all important foreign marets would at once brinR about a coneiderable rice of the mark end a correspondent fell of foreign exchange in the German mark ts. It must be taken for granted that important amounto of foreign exchange are being held by Iermans on account of pessimism or speculation. If the rise the mark continues only for a few duye, many ;ermnn owners of foreign exohe.nge will sell part of their holdinRe at least end certrAnly enon'h to repLy at once any advrrces m =ode by the foreign eyndioate f:.nd the Beichs bank to the Germ en government. Praotioally therefore there is no risk in the proposed transaction since the amount at the disposal of the syndioete is so enormous t,s to do cway fAly opposition from those who would be inclined to fight the improvement of the price of the mark. The success of the syndicate would be a permanent one be the one billion of goldmbrice at the oommand of the syndicate would in no time be used to any considerable extent and consequently would tqweys demin:.te the exohanGe situation. :he -3by the grant of Bove result, of course, u 3/4.whaltioned c::rom all a full mor:itorium to the ael7nan 'for.rzuront at least us r, /tut in that oven the isychogaymonta in oash for =moor of years. the lobloal effect of the mor.torium omsbined with the farm.ktion of in the syndicate will be so ore._t as to bring about by itself a turn exohanEe sentiment and in the apeonlation of German holders of foreibn he t of the form ti on of It nun easy be aseumod that at the announoemal mark will improve conthe st _bi 'motion syndic:it° the :Agee of the sider ,bly even without any trans ctions of the syndio:,te. intention of tii eyndicate to force up the It a hnot be the prioe of belle the 1,1,,,aft its intarn4 purohasing power. The mark ahould undue fluctuations. heflCO up easily, the syndicate only to prrment syndicate should try to hold it wtaire over the mark b000mes heavy, the it has the tendency to rest, syndicate should aft The best seoority Chia the stabilis,tion ovornment r isea in for is to bo fouad in the 2 4which the OS/Stall foreign exchan;e from the Gemmel experts. repri.sont about tit) mil ion gold told marks a year. in r atler times t merles per month, Lou" one billion ,B German *Wad he tree for sever_tl ourn.ht cash payments, the ilepar ,tion ;,:xcenission /oars fran mitt willingly con- sent to set aside a part of the 26$ levy on exports for the syndioate. If out of abund:,nt caution ?lip so ample security syndiaate would claim priority for its adv noes to the German ;OVellinent over all reparation ct:ulh payments, such .1Liim therefore Aould h_ve no rc .1 im)ort hoe. II. If the of the rrark be aS easy a problem us should not the ileiohebank alone undertake it sttlimAtiam explained abovo, why without the assist noo of a forest t syndicate? The answer is this. The Aelehsbank doe not ootan;_nd in full succons of the o)arCtormny ttn necessary credit to assure the aulohabank have failed. tion. Various endeavors ::cede so f r by the -4It would be risky to o. trust the eionso.nk ,lone with t e new effort to be made oven conditioned by a !nor. torlum. 23esides the tr nadotions of the .deinhsbiank itself viould h..,ve their naturill osutre in (kiloton markets 1.0., they would .)rinotpully oonsist in eollin, foreign t, on age Whisk would ue thk; wrong vi 4 for the operat ion. he iislohsbenk needs the oo-oper _Alan of foreign oapit..1 in two r:apeotss a) far a bettor n..sidling of the tr,nauctions fomiun markets, b) in the in outer to convince the -.4erman public that the stdliiisation is eur) of wit:owls and that 0,?position is useless. Besides thu ileionsbenk atoms could not furnish the tot 1 of one nil lard of gold ni;,rke whieh is ..roposed in oro.er to eliminate any risk th t nit ht otherwise be involved. iloviosber 11th, 1924 GERitiillY is in her present untenable position for chiefly two reasons: (1) (2) :The does not produce enough, partly beoause the amount of work per- :ormd in general is iumfficiont, partly because all the means of national production are not fully utilized, owing to governmental control of production and distribution and also to foolish tax len:islation. The Versailles Treaty, through its economically unf))1fillable tor* and thr ough its grave p syohological blunders, has ruined Germany financially and morally, and makes it 14ossible, moreover, to do away with the reasons mentioned under (1) How can Germany and, ,.gith her, Europe and the world get back to healthy conditions? The presupposition far the removal of the causes named in (1) is the assurance that Germany will becom a free country once more. (a re anval of the causes named in (1) is nossible only if there is the assurance that Germany will become a free country once ntre.) Therefore the following question will have to be laid before the ,..;eraan peopis: Provided the .:ntente pledges itself to evacuate GernurnT. (including the Saar District) completely, say by the firsi; of npril, 1923, to abandon any kind of 2En-1ot/ens, rotorsions, liquidations, oonrnissions and conrul- sory deliveries, and not to interfere henceforth in any way with the internal administration of Germany - will Germany declare its willingness, possibly by means of a p'ebiscite, to take upon itself the following oblications, without the fulfillment of which a return to healthy conditions is impossible: (1) '2hey will work overtime without increased pay rate for overtime work, i.e. trerely as an addition to the 8 hour day, and will do so long enotn;:a and to such an extent as to (a) (b) (2) make the German balance of trade active again and insure the payment of interest on and the amortization of a gold loan with which to effect the reconstruction of Erance and Belgium and to undertake the stabilizing of Germany curren y. (Details are to be worked out by experts. It is assumed hero that at least 2 hours of overtime -nrk for a period of fran 10 to 15 years will be re uired.) it so, Government control in all branches of domestic and forein business intercourse will be abolished, especially the demobilization regulations and all subsidies, in whatever form they may appear, Luch as regulation of rents, compulsory tenancy (Zwanp,s mieto), assessed grain deliven-ies, fixing of price limits, pro- hibition or restriction of irrports and exports, reduction of railroad rates below the coat price, particularly in the pas:;en- ger service, conpulsory assessments, compulsory syndicates , taxes on foreigners and on the letting of temporna7 lodgintss, On the other hand, German-, working once more with nortnal IsEtges t ions will e = rywhere in the world be and under grante favored nation clause and will have access to materials and colonial territories without regard e mos all the raw to the ruling flag and on the same conditions as the rest ef the world. (Details to be formulated by eaperts) (a) a- The German. !hark is to be stabilized at once at itself the stabilization the point at which reparations loan (as per 1, b) has been insured, and when tlse following additional conditions for the permanency of such stabilization have been creit will find ated: (a) for a period of after and at least five years, any strike in any in- dustrial undertaking that is of vital impart-sasce to nationel economy shall be forbidden and considered a punishable ofLease. (b) (c) (Essperts will determine what industrial undertakings come under this provision snd what the punishments shall be.) the administrations of public (government) enterprises must at once be reorm.nized and put on an economically sound basis (if necessary by combination with similar enterprises in other countries, but with proper measures to maintain the national character), 30 that they may yield p:cfit to German national eoononsr instead of causing losses, and ray at the same tiro become fit to serve as a foundation for the international gold 1 oan. (Detailed measures will be suggested by experts) tax laws must be so changed as to stimulate the thrift (saving inclinations) of the population, promote the formastion of capital, and restore the respect for private property, while crimes against property ar subjected to exThe German tnemo severe punishment. (Detailed suggestions to be made by experts). (d) 4. The forces of all ministries and government departments must be reduced to a minimum, and all the laws enaotea since the beginr_ing of the war should be re-examined with a view to ascertaining whether their effect has not been one to hinder eroduction in some way or other. (Detailed suggestions to be made by experts) Those 'persons of the riddle classes and those pensioners who, through the inflation, have been robbed of their subsistence should be cared for by the state through the means of terporary :Animus annuities, so that they may support themselves decently and not, in their despair, become a danger to Germany and the world. (Detailed suggestions by experts) 5. after all this preliminary work has been done, Germany and France, in conjunction with '..nesslan-i, Italy and Belgium, will have to approach the crder to try to arrange the indebtedness between the U.S. of America nations and thus make possible a final lisendation of the consesuences of the war of 1914-18. ANSWERED 0111 1920 MAR 9 'AO. V.I. 5, RAJE ,$CR1BE TEL: CENT. 79-75 F.,Piptris, Feb. 14, 1920. Hon. Benjamin Strong, Governor, Federal Reserve Bank, 15 Nassau St., N. Y. /LING /1../Etria ' RIR .7 Dear Ben:- IIOLARAL N. 0 - 1Wrprt, 0 At a meeting of the Reparation Commission wctieh I attended this week it was finally decided to use the foreign exchange rates recorded by the Federal Reserve Bank of New York as of 12 o'clock noon each day, for the purpose of making conversion in connection with certain reparation matters. It will, therefore, be necessary for you to add _to the rates which are already being established those of Germany and such of thie other Allied cujiirencies as you are not recording at the moment,where it is possible to obtain rates. It is my feeling that it might be of value for you to also register the rates in Austria and the other countries of Central Europe, as well as the neutral countries. Occasion might-arise where it would be very valuable to have some standard rate in connection with these countries. In New York transactions in some of the exchanges do not take place with sufficient regularity to enable the recording of a daily rate. It would seem to me, therefore, that in order to place yourself in position to make records of such rates that it would be well for you to have the Bank of England cable you daily the arbitrage rates which exist in London in time to reach you on the morning of each day. With such arbitrage rates you could figure the rates of any countries not covered through the established Sterling rate. The rates which you should have from the Bank of England ought to be nominal rates, that is, rates between the buyBy arranging a code with the Bank of England ing and selling rate. which would merely require that the rates cabled you should always be in the same order, and should always mean the sane thing, a cablegram could be brought down to a minimum cost. You could in this way cover practically all of the countries in Europe where the exchange rates could possibly be of use. It would also make a very clean record for the Federal Reserve Bank that might be extremely valuable. If it should so happen that you would prefer to have me write to Mr. Norman and make the arrangement with him, I shall be It is just possible that he might not know exact pleased to do so. ly where to go to get the rates, although I should not think that this would be the case. If there is anything further that you wish r:',e to do in the matter, just let me know, and I will look after it. gip b. S. 2. It will be necessary for the Federal Reserve Bank to arrange a code with the Reparation Commission, and at the same time make special arrangements with the Cable Company under which the cables will be given right away over everything else. Again, the code will only need to contain figures covering the rates, as their order can he understood. This is a most satisfactory way to handle matters of this kind, and I have carried it on for many years. The rates should be cabled 5 or 10 minutes after 12 every day, that is, the first possible moment when they can be set up in code. Mail confirmations should also come forward to the Jr. Rathbone will advise you direct as Reparation Commission. to whom to address the cable, and I am suggesting to him that the Reparation Commission register a cable address for the purpose. It is my firm conviction that the whole matter handled in this manner will work out extremely well for all concerned, and save an endless amount of friction that would otherwise he certain to occur. ',is are now figuring on the question of how bills shall be turned in by the various countries on ray 1, 1921, as no one believes that it is going to be possiblo to turn them in before. 4hen this matter is settled, I will let you know what is done. Sincerely, FIK/MhS .."----a.....r.%., 5, RUE SCRIBE TEL,CENT.79-75 Paris, January 7, 1920. Mr. Benjamin Strong, Governor, Federal Reserve Bank, 15 Nassau Street, New York Cit7. Dear Ben:- ReferriAg to your letter of December 1st from which I quote to bring the matter to your mind as follows:Suppose marks "Let me illustrate by such a case as this: are Quoted in New York at two cents, or, roughly, one-twelfth of gold par and Francs are quoted at ten cents, or, roughly, In order to credit Germany against the one-half of gold par. delivery of some specific article, one would assume that the cost of that article in Germany would be, roughly, six times what it would be in France -- and I do not believe that that is the case or can be regarded as a fair measure! " In the case referred to by you it is going to be necessary for the In order to do so, it Reparation Commission to establish a price. is often going to be a more or less complicated operation, but if they know positively that after a price is established that its conversion will be automatically based on certain known conditions, they can ascertain such price with much greater certainty and fairThe formula suggested in other words is ness to all concerned. not aimed to fix a method for the establishing of prices, but to It must be borne fix a method for the conversion of currencies. in mind that the fixing of prices by the Reparation Commission will probably not work out as a continuous performance so to speak, and after Lay 1, 1921 nothing of the sort will have to be done whereas the conversion of the exchanges kill have to be continaed for many years. Of course after May 1, 1921 if Germany desires to deliver goods in part payment of indemnities it could do so provided Germany and the Reparation Commission agree as to the price but there would seem very little possibility of the matter developing in this manner air the Germans will undoubtedly prefer to sell their goods and make payment by the exchange received therefrom. By doing so it will help build up their foreign trade and establish nod will, whereas deliveries to the Reparation Commission would carry no advantages If therefore some fixed and positive whatever of this character. r B. S. 111 method of converting the exchanges is adopted, no friction need ever develop. It should also be borne in mind that the raper mark after May 1, 1M1 will probably not be brought into the calculations at all except possibly in connection with coal deliveries. This being true, the price of coal, if it continues to prove necessary to fix it in paper marks, can be so based as to make the caLversion on the system adopted of the paper marks into gold marks one that will bring a proper result. The more I see of the developing situation here, the more firmly am I convinced that the system suggested is the only one that will work without friction as when once adopted it will be automatic in ninety nine transactions out of a hundred which will prevent the necessity of wrangling between representatives of Nations which it is to be regretted is a popular sport at the moment in this part of the world and will continue to be as long as there is elasticity to Reparation adjustments. Will not bother you more at the moment with this matter as I know you are busy, but felt it advisable to give you this You of course can r,alze how I have certain advanfurther point. tages as to the obtaining of information which Government Officials do not, in that Banners and industrial men talk freely with me whereas they do not always do so with Government representatives, and I also hear the Government side. Sincerely yours, FIK/MC. i2.8.1e w!_, Iliad in Amuterdam th,t the adherence of a Dr. Vieeering 4 conference ouch sent,,tio to a plen tould be dependent upon action by our Govern to ell rrts-6in re,Fud in . I, personally, regret tit it too rtiee. r. Kent, toc-u lettr written you,I te_ieve, by pro-eat Um,: our Governmtnt, technicaliy, 0,41 not indGr e .ucv. a .ouid L on r o ,ually uns:*ortostat,1 to h.ve it decline to iacorue irovi, .ithooL;1. cet it in gener,.1, Ahich rov_i or not. this particul r one wcuid m.et vii it, a Ar to tn.e concluion tn t the Elmpiv.t of thi, country wouic ; ) the re u4t of 'ri no ,ise;t. proc:.Ourt along Lao folio,dn,4 of tu, 'rip Co .14. re eoi.oe. Fni,,rgo tae cli...L1c it to oe_l with :444 m4 \b) L uUt, o ,;re ,t Le 1 o 1-41.( I , 1000&.t,:f r, of auavisi !,no Enlarge the po,eru r( of tht ourc .. s!.r to en,ble it to de.41 aith all matt-er.- of ra (c) LeAve all financin, of capital reuirentE for no investorw. for h-,nlin6 ty our tulkers (e) iri InVitb the neutral governments to u ,pleaent ou ;.ith 11±-alon6 :,,omAhat Limil,r line:: if posj.Lle. It apearo, u,on th,,t in Lome res,,-,cto rent Lot approve of the above suet.ons at any rtu tor the poi,side to ondert,ke even th-Lt iGrIL L. tao tre.ty I no is all most diea-ppointing to me, ,eronally, Lut, no leing made, I hoe, will reEuit in some ii4n for the im.le'7i: this Ainter to thoi.o ,art of Europe Ahich :;,ay euffer for a,nt o possibly fore this lettor ru cads you I nay be able to Arit along tnis dafin tely, as to pro-,oeal I ho.,'; tn t io4 anu quite confidentiElly, i or .inc. uneortend that I am writir.e yoo ti.., ni. m y 1L8.19 Dr. Viesering 3 ytareonLi views. Our discussiOnE of these matter6,-when I you, did muoh to cir my own min c'. be t.k.i h:d the pleasure of visiting gavemeb.dded aE,ur,:nce to urge that steps for relief itie,ure'- Uiti minter, feeling -tht ke. mould count uron t'ken in Hollntl :nd other neutral countri. step E :7er.,1it W6 alhO to thnic. you mo_t cortAiy for irA oo ,,ervice y.:14 rendered Lo uE in hlindlint2 the gold rceived from Gerw:hy, cohc,rning rhici, 1 jeJu Do write me froi tie to time, fuLly rt4l_r I ch,.:if crtiiy ket4 you idform7u ov r here. i o_n of devlo,labat it: 1 :_.flu I your_, 1.r. G. 0/0 ne Ned6ri.ndache ian*, Am. Lerd dr December 1, 1919. Dear Fred: Os" V( I have your various letters dated )ctober 21, 22, November 7 and 10, all of which I have read with great care and interest. I an greatly pressed for time just now and will defer writing you fully in regard to the proposed system of accounting in the reparation organization. bills will be promptly paid. The Embassy In regard to the meeting at Amsterdam, how- ever, I feel some real concern lest we be developing a situation already difficult, either for yourself person:A.1y or for the Government. It would appear if you or any American signed the report that certain of our citizens were endeavoring to influence or bring pressure upon the Government through the instrumentality of the organization of the League of Nations. Representa- tions of that character should first be presented to our own Government by private citizens. Furthermore, the report contains some references to the method of treatment of foreign dett3rs which are wholly out of line with what we know to be the present official attitude of our Government and some sort of embarrassment is certain to result from anyone occupying so near an official position as yourself signing such a report/ But, what impressed le as unfortunate and I think I should write you this frankly, was your letter of Rovenber 10 to Dr. Vissering, the effect of which has put everybody on notice, that you are proposing to put the matter up to the Government for a decision. It might be that our Government night not like to be asked to make such a decision at the tine. In fact, I think it would have been wiser to ask for an opinion from the Governnent privately before indicating to others that we were asking for such an opinion. I an writing this very -2- frankly because I kn)w that you want my opinion and that you are accustoned Alitilli to getting it frankly when you want it. In one of your letters you said that you understood that I was in sympathy with the idea of a bankers conference. The only conference which I discessed was a proposal that the Governors of the central banks should meet at some time to discuss natters of mutual interest. Such a meeting was urged upon one by Ar..Gunther, Charge'de Affairds, at the Hague, who it seems sent a dispatch to Washington repo unending that such a conference be arranged. Confidentially, his dispatch was referred to ne by the :fission in Paris and I urged there as I had already with Dr. Vissering, that no such conference was desirable under present conditions because it would be interpreted as an effort on the part of the central banks to deal with the foreign exchange problem which is too vast a problem even for the central banks to undertake to solve and it night in fact give rise to distrust and aneasiness. Such a conference would be of great benefit to the whole world just as son as governments are spending no more than their intone. Until that time arrives continued expansion of credit and inflation of currency is likely to occur and under such conditions I do not want to see the Federal Reserve banks involved in a discussion, the only result of which can be to place burdens upon them which they should not now assume. Sincerely yours, Fred I. Kent, Esq., Vo Bankers Trust Company, 5 Rue Scribe, Paris, France. BS:UlcC rR December 1, 191. PEIV.TE AND CONFIDE,TIAL: 4 0 (? ' Der Fred: !fit . 4 If dct-4r I am sending you two leAers toniay, neither of which, I fear, will -.rove very satiaf,ntory to you. I am exceedingly Anxious that you do riot push ahead too fast conhection with Dr. Vis:.,?ring's plane, or thoe other bankers'. I ';:iave gra t re&pect for Dr. Vissering en,J for hie intentions and purposes, ut, personally, I regard al_ of these plans for cre,ting something out f nothing; as fundamentally unsound in many particulars and nighty cLngerThe report wnich you sent me con4Us from an inflationary stAndpoint. *ins ,ome aciairable reitale, but, when it comes down to the proposed 0.eatment of the itu,Aion, it i.,, exceedingly indefinite in certain im, , ant 40040rt articul.r.rs and rather takes for ,reacted a willia:ness tc, organ0 e 0 .ze the financial forces of the world to look after Germany's situation .t_ the moment, wi,,hout regard to tat, interekta of the hAions with which were associated in the war. . `bz-2 oe Nothin that has developed nines my return changes my on that the instrument to Le employed in this country for furnishing d credits i the Grain Corporation, :.nd the one for furnishing raw Serial credits is the riar. Finance Corporation. I would like to see a In worked out by which the interested neutral nLtions would cooperate a large way, and even that should not be difficult with v. little inenuity. I hope you keep in CIOZJ touch with Rathbona on all of these ttera, a he, of course, will be fully informed of ov rythin, that is on here. `,'J.th many thanks for your very interesting lettere, I au, Sincerely yours, -. Kent, us :crib:), vrance. 6,1, r4, 4 t i ." 4 DR, G. VISSERING - AMSTERDAM. Amsterdam , November 14th , 1919 Benjamin Strong ESQ. Governor of the Federal Reserve Bank of New-York NEW YORK. dear Mr. Strong / I just received your confidential letter of 6th October last only after a long delay and thank you very much for your courtesy to spent a moment already on the first day that yo': were returned at your office to write to me Ihope that your health will be again quite satisfactory It is really not a pleasure and not without much inconvenience to make such long travels in this , . . bad season . In the meantime we have had an opportunity to several further conferences and I expect that Mr. Warburg will have informed you that we had a very interesting meeting on the 13th and 14th of October in my house where Mr. Kent , Yr. Rathael Georges Levy from Paris and Yr. J. M. Keynes from London were also present . We took the resolution to call a second meeting only of individuals therefore quite unofficial on the 2nd of November and we invited also Mr. Wallenberg from Stockholm Mr. Volckmar from Christiania Mr. Gl6ckstadt from Copenhagen and Mr. de Haller from Bern to attend to this meeting . We have been so happy too that all these gentlemen were ready to come to Amsterdam and Yr. de Haller was still acct one of his cdlleagud4- , , , , , , , , t"'",-% ;aia4t gr:4-2e to more . , .:xpechat he will fuliy;agree al o with the re Levy was prevented to attend ill , , as his wife was rather seriously but we hope to gain still his collaboration also for the resolutions of this last meeting , which has been convocated by letters also signed already by himself in Amsterdam on the 14th of October Mr. Warburg will be able to give all further . information of what hapt'been discussed and of the final opinion , of the gentlemen present at this conference Of course , we kept the conference and the resolutions absolutely secret until we should think that the right moment should ha' come to publish our views . In the meantime on from Mr. Keht , we got some further informati-7. writing us from Paris , that it should not yet be the right moment to bring our suggestions before the adequate bodies being in the first place eventually the Council of the , League of Nations in London and the Commission des Reparations in Paris So we are obliged still to keep entirely secret the . results of the second conference . On the other hand we got from Mr. Keynes very satisfactory communications about the persons he has consulted in England about the steps to be taken by our combination of individuals // ./If I hope questions steps , , , that when you receive this letter all these , that are hampering now our combination to take further will be solved , as circumstances are already more pressing that something should be done to restore the very serious situation -hearlytdeteriorating every day . ,0ti:001&*44i.ilill be very ..grateful to you if you will be eb with sit f the most iitpartant L=ta.aladmalamilr-mrivill.or^ rhopt.also t 't s 5, RIDE SCRIBE A t-0. .1 CFI 1° TEL , CENT. 79-75 Vris, Nov. 12, 1919. av-E, Mr. Benjamin strong, Governor, Federal Reebrwe-uank, 15 Nassau St., N. Y. Dear Ben:- Your letter of Oct. 15 just leived to-day, Nov. 12. Am very glad indeed to know your opinio of the strike situation in America, although I had felt that there was every reason to believe that government might be able to control the situation. The principal difficulty is that they have allowed the poison to go too far to make possible control without considerable friction. However, it is a world disaster, end unfortunately government is permeated with it, as well as labor. One phase of the situation here which is giving me a good deal of concern at the moment is the lack of coal. It is so bad that many industrial concerns have been obliged to shut down, and as many of those which have already closed manufacture for export, it is having bad results, which are already showing in the exchange. Some coal has just come over from Germany, which is going to help a little, but the German miners have knocked off work to such an extent that the German production is nct sufficient to meet the situation. Germany itself is apparently very short of coal, but this, I believe, is due more largely to lack of transportation facilities than lack of the actual article. If the Westphalian mines were worked to their pre-war capacity, the whole situation would rapidly improve. Passenger traffic in Germany and Austria has been suspended for e fortnight in order to facilitate the movement of freight. It is felt that this will result in a much better distribution of goods, and save some percentage of the suffering that is inevitable this winter in view of the unwillingness of labor to work properly. Presume you have talked with Mr. .larburg about the situation in Germany. Have been able to confirm a great deal of what he said, but there are also conditions there which were not apparent to him. By this I mean that there is still so much double dealing on the part of the Germans that it is impossible to trust them in a way that is necessary in order to enable a pulling together toward better conditions. This is undoubtedly not duo to the acts of any of those with whom Mr. ..darburg was associated in Germany during his stay, as they were the higher type and had a different point of view. The unfortunate fact remain that there is sufficient German intrigue going on all the time to prevent any satisfactory progress. While the other nations, of course, have many representatives who are also engaged in intrigue, OB. S. 2. and which as well acts to hold back improvement, yet the carrying on of some of the Germans is such that it makes it impossible to place confidence in those who wish to act in good faith. Regarding General Farbord, would say that immediately upon his return to Paris, I wrote him that certain facts and figures which were being obtained for me in Constantinople had not yet come forward, but were expected any day, and asked him in view of the fact that he had, according to the newspapers, turned in his report, whether he still wished me to furnish him with the statement that I was working upon. He has not replied to m I take it that he does not care for the report, and as I am more than overwhelmed, I shall not prepare it unless he asks for it, because it would be foolish to do so unless it were going to be of some service. Will look forward with pleasure to your further letter on conditions in America, which you promise when you have a favorable opportunity. :;ith sincere regards, I am, Cordially, 67-6-1 FIK/MKS 5, RUE SCRIBE TEL CENT. 79-75 Paris, Nov. 10, 1919. Mr, Benjamin Ftrong, Governor, Federal Reserve Bank, 15 Nassau at., N. Y. Dear Ben:- My former letter to you was sent immediately upon my return to Paris, and before I had gone over the matter with Rathbone, as we had arranged before I went to Amsterdam. Rathbone is absolutely opposed to putting in any matter about reducing loans, It was because of such anticipation which I fully anticipated. that I arranged in Amsterdam before I left to have everything held in abeyance until I telegraphed Dr. Vissering that the matter could be released, The position of our Treasury Department in connection with the whole matter is such that 1 felt it advisable to proceed in such manner that it would not be embarrassing in any particular. Will write you and Mr. Warburg fully as soon as Mr. Rathbone has determined what position he may wish me to take. At the moment he is considering it, and when he does give an answer, it will of course be unofficial and absolutely confidential. The calling of a meeting of financial representatives is in line with your own opinions as I recall them. 'gill not stop to write more now, as I wish to send this by Mr. Jay, who is sailing iiednesday. With sincere regards, I am, Cordially, FIK/MKS Enclose herewith copy of letter which I have just mailed F. Dr. Vissering. Telephoned the contents to Mr. Rathbone, who is in entire accord with it. P. Paris. Net, 10, 1919, Dr. G. Visclring, ?resident, Nederlandeehe Dank .esterdame :loll nd. 4r (14_7 D. Vie3erings- Anee -etarn to ?*vie. i otively Vasa vep the question of Ohs presseteldon of the ,iemereedese drove wp laanaterdsowltheartota impertedirepreeentutises of our Ilersaimit. the question of eneemblag to the beep* of Motions, arming up as it did se eaddenly is MOOS did nes glow 41, 0VgartunitY to assertaitsidbetber the isles ~fees in *leered the polltleel eituatlee isimeriaa cLa to the ellseagefts pree Wyse, at the asst is us. Dotted otobei foseee in rogation ts the trams of P0300* i fiat now, hoover, that than is a yosetbILItr tut% the Promemt ation of the idemerundom to the League of Nation* olehA Molt in this avoloWm oat of neeplitedieme shish scull ihorintety defeat the lea of Oter aseteresseh this tedneltrue, it Is easessar ter re to withdrolozot oillearAPI flea to the Memorandum anti& the natter eau be platelet lherter. to °laxity tho altuatieo4 oesiblegreo le holeseent tv-aer which will result in putting Le matter before our President, for there*** Of obtaining his opinion and it possible hie Smelt approwat. Lme 10 the ten that the United dilates ww.id be ostilet span to Carat& the portism if am, feud that Nigh, be built ap lop the Nations asimerned, it is variesearg that as have the approval of ourad-inistratios before emthingeam be dem, gosh beteg the ammo It 18 tar better to obtain Oleah approval. tt palmate beam unp meth* elope are undortaren to brims the &Aimee together to the meow desired rather then etteretard, in sem) ear Aftialitraties doe* melt appreme, nothing sin be ofteoplished Up Proem** the aseerandem to the Limos of Nations, sod mhhh friction night develop, vbeream with its eppreeel, 001 NOM tesiordillth oontitenoe in an and to Wag all of the liatiosS senoareed is Me. leardleas of shether it proves advisable to proem* the reeereadme is the heaps of hohlooss the ilenterenoe With:hem bad, 1414 here 11.0140100 bemuse us wi21 got000ttooslar sod out *dim the Govaloott aft ttio Vaasa states to eft lisi to to smoomottod o otooptiotod oseething of volt at Ow moat MU Ur Ms at adds. adranees t isoaps. Dr. . YLatertif4 2, 04 114ould we fiat that it is not poselble to in the esestein Govorn out into the roattor ba the manner endlaeledlt, the delarevelOo. eny father oonsider_tiou of UOVOraMint taring part at proverb Wad be alp *mod and It would not be neeeleary to meet. 1111, more tias on this photo WitA the hasekodle thus gained* it ribald usraly Weems a Seatteres preposition riblohAbeesoleurly realised mold be tinflovi trot drat alt tho problem* polet of Tie. without Wag mated by the elseeet peseibis governmental action, It moult thee be in or- or for lae Members of the anterooms* to their stogy of the elt4atIon alai/ether lime and as sem se aorristpeaftess h passel lostrassn us that seemed 1 anew for Via MS, ieelsemseat ef NMI prestleal sethei preeseures a way tber emit be *ailed la Paris aid MI exult mese teswash dale. l7 two* the asseaftlisissent of sesstasig that will be effeetive in tootle. the neeeeefitles of the seee it will be in order far you to need a eeyfy of this letter to every I am is resaipt of Aisplies to oalegvems now gotag forwrd4 I mill Aviv, yen fiat. of ft* moult, also for thn intorno» ation of the of the c3onf3z-nno0. Member of the antennae* AS Whim tort' 414 .,j, truly yours* ( 5, RUE SCRIBE TEL:CENT.79-75 Paris, Nov. 7, 1919. Mr, Benjamin Strong, Governor, Federal Reserve Bank, 15 Nassau 5t., N. Y. Dear Ben:- Enclose herewith copy of matter which was prepared at the meeting called by Dr. Vissering in Amsterdam. Doubt whether it will entirely please you, as I am not satisfied with it myself. However, it seemed to be the best thing that could be obtained in view of all the circumstances, and the importance of getting the neutral nations of Europe linked up to the situation seemed great enough to make it worth while to let it pass as it is. Germany owes the neutral nations of Europe some 4,000,000,000 Marks, of which originally 3,000,000,000 Kronen were owed to Sweden. A part of the Swedish debt has been repaid, but just tow much I do not know. The neutral nations are, therefore, extremely interested in having Germany able to work out from under her presThey also recognize fully what it may mean to ent situation. them if Bolshevism should develop in Germany or central Europe, and they are ready to put their shoulders to the wheel to try to help prevent such an outcome. The meetings, which lasted throughout Sunday and Monday, Nov, 2 and 3, were attended by Dr. Vissering and Mr. ter Meulen, of Amsterdam, together with one or two others from the Nederlandsche Bank, and representatives from Norway, Sweden, Denmark and Mr. Levy, Vice-President Switzerland, in addition to "Yours truly ". of the Credit Mobilier, who represented France at the first meeting, was unable to come on account of the illness of his wife. I expect to go over the matter with him, and if he approves the paper, it will then carry a representative of France, as well as of the other countries. Mr. Keynes state) that in Great Britain they were extremely anxious to have the matter submitted to the League of Nations, and he took such positive ground for this method of procedure, which seemed to meet with general approval, that it was allowed to develop in this manner. Of course if signatures are obtained to the memorandum by representative people in all of the countries concerned, and presentation is made to the League of Nations, which may be called together inside of the next four weeks, it will either receive notice, in which case a note may be presented to the governments concerned, or it may be ignored. In the latter event it will leave the Committee called by Dr. Vissering high and dry with no plan. As you know, I have of course been working more toward Os leave to lay before The undercigned indivduals bie the Council oZ the League o:! ration,, a pre7ceal that the concerned, which should Governments of tho coirit7ies include the United Ltates, t.le United 1:Linp:aot. and the British Ger7any, Austria, DoLinions,-Prance, the' chief e;,:poting count- the Neutral countries 9f '.;Alrorie ries of 6cut--.11Leric, should be invited by the Coul.!cil forthwith (the si:ztter being of tl.]e greatest urgency) to convene a r::eeting o Pinncial reue,,enttAives, .for The ea:.:ining the situation, briefly set iirp,.so of Thrth anti. to ro- coE-::ond, in the c- e:1-. oi their deciding that co-operative asEistance ie neesary and advisable, to whom and whom eneral conditions. as:dotance should be given zinc'_ oil what They venture to add to the above recommendation the following observL:tions The ,;.ar Ags left to conqueror and conquered alike the problem of fif:din /roans octively to arrest and counter- act the continuous gro1.7th in the volu:ne of outstanding money o: ,l-overnr:a.nt o*Jliations, an t, its conco.nitant, the constant increase of prices. A decrease of excessive con- sumption and Ra increase of production and taxation rare not the only-, remedies. recognized as the r,ost hopeful, Unless they arc prcrptly &7flied, the ;_opreciation of Toney, I it ib to be feared, I ( continue, viping out the savins of the past and leading to a -::3raduF; :l but persistant sT,reading of banruptcy and anarchy in Europe. - 2 - There can be no social sr oconoLlic future for any country , which ad6ptb a perlanent policy of meeting its current expenCiture by a continuous inflation ^f its circulation and by increeaing, its interest-bearing debts without a correoronling increase of its tangible assts . In prnotile every country will have to be treated uftor careful study and with due regard to its individual conrUtion3 am requirelnents however , is deserving of credit . No country , nor can it be considered a solvent , debtor , whose obligations we may treat as items -f actual value in formulating our rlana for the future that will not ",r cannot bring its current expenditure within the compass of its receipts from taxation andThis principle 1.0M.#9 clearly brought home other reular Lust oo countries ; for it ill be impos.,,ible otherwttse dream of false hdres .rid illusions to the cts that Germany .r1ll have to bear a heavier load than hat , in conformity Tfith the Treaty of Peace st possible burdn she may saf::ly assur.le kia that this, bur,4cn ble taxatien o-J1'' which forms th o. a riot t.,xc.'d ths.m3as..Irc. very sourc.. of :ffoctive taxation mic flv..?lopmnt is i.ivolv.A. upon inds that clod world , whose mast not G. ixaminatiori , th tho most drastic trale and corioumption th sums tribute imn,,2diat.ly towards the curr nt ot th But that it lot;s not 'stroy itors Ll.nd for th.: saki ni th i"sta:ioo . , oblie,atirns now stipulated ootA to talce th view that tho scope brought v:ithin the lizialts even though it might d of instaIn_nts necassary for 1 . a7z .17.T 20_ uepang 071. 1.,JTA OUJJ(..1, pt!V eT 4T T7,,L. paeoxa ..TENOPIDIT 4 IDJTJoA 07:Q. epern...al 7T17q...T0',) t 4 4JU ;E-n-:1 1.177J1. V j7;Srar V ;nucT :cit.:Tact ei .,=2,u7::...:UTITTE, Q;TIT paoraoz_71J.,:: :JT q.,,nr :37TATI- .T-:ICU r7t TU ;TaTae. V T-vd TU -7,7Taolf.JT 0-77; 7; T b q.1 a.TTJ1. aAra.i,i icT,717poau :)t::7JJ3 0,717 1,TV 4 TL qti. DrTFtZL 7,mroa :i.A;TJ ert.JTJJ:i.JT 17J; T-,7T7vo qTu ;1.T; !tua,T. LJL aq u; Li 17= ot. pJ:JS 37,T; 47i/Tu; j,ytpr.xJ ee:JT v ;Jvd ru ' Ij :1.07. 1.T tT.T:1.:11-1JU 4 i:;7/1. aa:)/1_ TU07;.7TT 7=J71:. T.IVJ r77: oevo 7orzilo A'7. e7ITT)To LIOTA ;f.) 07.11. 1.T-)7 L:u.TvuT TLY=QJ oelw12 6 t DOE 'ZZTT :1TqvTjT;.'4 alha oe73dxi-, Lc o7; ZC, e7Q. t?:T.T4Un0'.) .3..;)pTS7JO bT)qOi :..:UTTToTo V U3T9,-Toci .170 JJ J 17.T.T.TL.77 01.7.77.7 j,) 07.T.JT4.2TTO.c..) V %JV,T. ZJJ Jo;;12T 372, JatI4T So .touTuvpD:rov eu:Jav7..)-;ez,a.:,7_tzT au q. aToVq. leoTTTIT 7JT0i.v1Tv 1:130.7Q .C.;?74 7.4731: ttJtOrteTi A:7;aux oc, 7T ep:ru o7; ;evd eaatio;) aVturexi., .70MILTAL oVq. u oW. Ta1.7VIOu ooq. T.Y;;11) q.e.rtIl it. e-7.TAve Tr, TIT q77.4. TvTue TC weerfielti aja 777;7E. 4 T.,T;7_iv77.tj 37T 7.JT;v7;17; ju es tp. .7r.:r1;r1, LtI T( c=)7.2 H2N7.1:Te JJ LJ.TTI 77q. aTOT.T;. on. vT Z -717:rjT TIT ::T2-t\ 7J:x euvJT la:Ta;.: 717: toor'013%7: .31??.Tm aodau ev v ovm V uuT;auduJ.J. ).1vTLot c:,TJ,:),T.T1-.u:),1:TpT.TaT oqT I-211T.TM 30TIVIrQ IJ ...,$7:71137UT tr-J 7%)C.0 laTou40; p7v pTo7.) - 4 4,11enot necessary - free the the fictitious items or,71J's bslcIncesheet fro.n come cf hick no'' inflate it nni lead to Pere .despair an the part of some, -nd i I rocklpssness others ? 'ould uo. ^ leFlation firs.t step to-ards c re ncesheot ? -hen once the e-Tenditure Di' the vari,uF has been brought ithin their taxable capacity, a first cOitirNn part )r r )1 or .opran countries ( -hich should be granting the r, further a::sistance ) n i , -when the burlens of indebtedness, as betreen the 'liffcrent nations, have been brught ithin the iLmits ol cniurance, as to h.or those countries are to tal necessary for them t tins the cirel of raLle' 'arises furnished -ith the Iorking capi- purchase the imports renuired for ra-star- -;.chmil.e, to rr,::tmre thfr!ir pre,Auctivity, and to reorganize their currencies. Thn cip;n-orios submit that, rhile -,nch can be- lone through bankinf; channels, in smount r,til tt-e -or!:inr capital rraelcd is too larg4 is re,luired too rucl adeouatt. Thy are of (1,Anion thtrefore tit sulm scheme is ntcessay. only to a single country, hici: it is not u NnA wh(,12 -ore comprehensive ',unction of -.o1'1'ordi"nr . -er2 allied in the -ar. - channels to be in .!( o p of Anintris inter.sts of the .art; belligerent countries, Mich -n :lo or- to scutral .asidy from taking it riro:(v)tc- hich all Throp, i t :orn,, 1 now suffwrin,7. proTer LrArit Yor which thr, League stands than 1 great int, rnational act of assistance designed to heal or r-urope 4.,tions wore to rec4mmend co,k(ative action, there is n 1.1.tion u2lonst .Jo act could .1-101. nt.1'7,,e. Theyht.liee that, if the Lc :ague part. aid cooperative .:t,(1 .-conoTic evils from It is net rur intention to sur77est in detail f-e rethod by 7:-inh such intrrnational co-rye-ration in the grant roy be secured. r' credit e alle'r ourselves the folloyin7 observat- t ions 1.- Abe .,reater 'rart of the furC,E, must necessarily he sul'rlied by these countries, .here t.7:e trn.do balanne and the ox- (.harze3 are favouraele. 2.- Lrr4: tern fore.ir. nredit, sunh as is hen nortorrlated, jj', only desirable in so far as it i3 obsrlutoly receSs-ry to restore rrlductive rrrresses. It is rot o substitute for 'those efforts and sacrifices Cr.. the Tort of e:leh country, by whinh olcre they can solve their irterral Irobler. It is only by the real eronomir renditions 7sresin' : severely, as tbey- rust, or the irdividual that equilibriur can be restored. 5.-For tl-is reason, and also base of the Tfeat derands or r.qrit:1,1 for their on interral nourtries V-;er:seivos, uroses in t'i' :7 lendin:1 the credit strlied s'-ould be reduned to the ririrum al,solutely necessary. 4.-Assistance should as far as lossible he giver ir a. rorr which leaves national ar.d irtrrnatioral trade free from the restrictive control of C:overrrents 5.-Any SCIP ercrura7e to t:-.e T;reatost extent rossiblc t:v suyly of credit and the develorert of trade throurl'h nr=1 so as it ,-ro-e s T:essible to issue lo-,,s to the uhlic ir the lendin7 countries, these leans rust 1,e or s'Arh terro as -ill attract dividual; other-is inflation ":ould bo incrased. bcrrolrinr; ocurtris chtairable sonurity. For tl:is LIreed : real savin4s of th-. in- L:--c to yrovide the best '-qr:r.ose, it shruld he 6 ( a ) surh loans should ra..h in frcnt of ail other iddebtedness whatare,-er whether internal Jet interallied ovor=ental debt C b reY.aration payment ,1 cr . Rlrull be set aside by the borrowing countries a ation , a ,7:uarantee for the pay:rnt et interoot an amortiz- the rharactor of surh nruriy varr;rin 7 T.orhars from nountry to nnuntry but includinc: in the caao of Gerna7ly and the riL-nr ntates the assi.7r1T-.ont nf paya:)le on a gold basis export duties of E;tates entitled and 111 t./7 receipt.? from Ger:lay , a fit char tn ouoh ronoipts o7.;tico. at preqent I- darl: Ilefore us now 7reatr tash is than to devise neano .):: which sr-z,e measure rf ho.cfullness will roelitor the nindo of the msses bliohi:.lent of tr -forL and to cave TL 1 . The reesta4 of Incentives tc the nir.:h:-:st indi7idual effort and rf orportunitis for every one to enjoy a relsonable share of the the air,: towards which the bo:t should ncoperate , r:.it of hia exertions in aIl crurtrieo :in' Only if we. rer7nise that the tine has now rr,me when all nruntrieo must hlr, rne another bring abut an atmosphere , in -hirh r-fe ran 7so hope to ran iron ferwAI-1. to the restnration of nornal conditions and to the end of our rresent evils In conclusion th simatcries desire to reiterate their ronviotirn as to tho very 7.ra-fe ur7en:7 of these questiens in print of tit . fi_jvery nohth rj panseo yjJj aravato the -orrblem and render its e7entual nriuion increaningly difficult. ll the infornatinn at their dionrsal nonvices them that very rritiral days for :urope are jC cnt and that no tine nut be lost if catatrorhos are to be a7crted . I COPY 4 Green !1G Paris, Dated October 28th, 1919. Recd. 29th, 9 a.m. Secretary of State, Washington, D. Urgent. 4669. C. October 28th, 10 p.m. R-18, to Secretary of Troasury for Davis from Rathbone. First. The exchange questions affecting accounting are difficult of solution. It is evident that damages for Which reparation is to be claimed must in first instance be computed in currencies of respective courtries which have suffered same. For accounting purposes there should be ore currency used, to which all others car sooner or later be reduced. The gold mar: is obviously the proper currency to so use, particularly as bonds provided for in Annex Two are to be payable in gold marks. It seems quite evident that in figuring Germany's maximum debt it is proper to convert the items of damages expressed in the respective currencies of the various Allied ar.d Associated Governments into gold marks at gold parity, provided Germany, in making payments in gold raris - 2 - llb 4869 or its equivalent, is given the benefit of the depreciation in the currencies of the various governments at the time of payment, so that Germany will be credited on account of future payments with the depreciation at the time of payments of each allied exchange upon New York exchange market as fixed by Federal Reserve Bank. The foregoing is equivalent to, but simpler in its operation than providing that Germany should be only required to pay install- ment in gold or its etivalent up to the requisite proportion of the respective currencies of the various Allied and ,tosootited Governments which such paimenf would produce, on account of the depreciation of those respective currencies as shown by the rates fixed by Federal Reserve Bank. You will ob- serve that as maximum German liability is determined by conversion of allied currencies into gold marks at gold parity though the currency of a country may, theoietically, go to a premium in New Yoit, the maximum Ger]mn obligation to pay will not thereby be increased. In view of the fact that conditions of trade will more nearly approach normal as time goes on and considering also the effect of present treasury support &British, French, and Italian exchanges will disappear - it is believed that no fairer Paris, 4669 COPY -4- the currency of the country receiving same would 4111/ be deducted from the gross claim of that country expressed in its own currency and the same amount would be converted into gold marks at gold parity and be credited to Germany as a payment on account of obligations. Fourth. As to (B) second above, appropriatT that at the moment conversion of marks intc other currency measured by exchanges may not furnish fair plan. However, as trade returns to normal and artificial conditions brought about by blockade and War disappear believe that price of materials on row York exchange market will furnish most equal basis for conversion of paper marks into gold marks or into currencies of various other countries. In meantime it might be possible to make conversion of paper marks inim gold marks on basis of table of commodity prices in United States and Germany as index with reference to prewar prices of such commodities. See no reason why such table should deal with prices elsewhere than in United States and Germany. It will be necessary fix value of paper mark only with reference to gold, as all conversions between gold mark and currencies of various allied countries will be on basis of mint (parity?) of exchange, and as already explained Germany on all payments, whether in gold, materials, services or paper marks, will be given Paris, 4869 COPY 0 - 5 - given benefit of depreciation of the allied currencies as measured either by New York exchange or by decreased purchasing power of currency in which values of materials or services are fixed. It is recognized that where Fifth. payments are made by Germany on account of reparations while Treasury's support of pound, franc and lire exchange still exercises influences on New York exchange market, the system proposed is not beyond criticism. Kevertheless as payments during such periods will be relatively small, the comparative simplicity of the plan proposed compared with any other plans considered recommends its adoption. Believe it is impossible to devise any fairer plan or one beyond criticism. The plan proposed which contemplates the agreement in advance on many important principles will, it is believed tend to avoid friction and differences of opinion between this and countries in t,e future. sixth. If you approve, intend to submit to commission on organization Reparations Commission, exchange section, American position and accord with foregoing, substantially as followst (A) As the custom sustained by France, Great Britain, Belgium and other countries must necessarily be final, in the first instance, in their own currencies, it seems sound that these currencies be converted into gold marks at par of exchange in fixing maximum custom, and Paris, 4869 411 and that Germany should be given the benefit of depreciation in exchange of these countries, measured by New York's market in most cases: i.e., the payments made by Germany in gold marks to be figured at the exact amount of the respective amounts of francs, pounds, etc., the gold payments would produce over the Eew York exchange market. (B) To the extent that the payments are made by Germany in materials or by services (uhless otherwise determined b,y the treaty) the value thereof should be determined by Reparations Commission as of the time of the delivery of such commodities or the rendering of such serviceg,in the currency of the country obtaining such payment in materials or services. While ordinarily these values would be fixed by the °omission on the basis of values of similar com.odities or services in the country receiving the same yet, if the commission were of opinion that unusual conditions existing at the time did not give a fair indication of the valuation of such materials or services so determined, the commission in their discretion, might fix such values with reference to the world values thereof. The values of the materials and services so furnished by Germany, fixed as above, would be converted into gold marks at gold parity, and the corresponding amount of the claims of the respective countries receiving such materials - 6 - Paris, 4869, COPY -7. materials and services would be credited with a corresponding payment in gold and the amount of total maximum claim against Germany as fixed in gold marks would be diminished by the aggregate amount. As the claims of the Allied ard Associated Governments in their respective currencies are to be converted into gold marks at mint parity, similarly the amounts paid by Germany in a materials and services when valued in a currency of an Allied or Associated Government should also be converted into gold marks at mint parity in order to determine payment made on account of Germany's maximum obligations stated in gold marks. C. Reeognising the abnormal conditions produced by the blockade and other war measures upon German exchange maw prevent at the moment the purchasing power of the paper mark being fairly measured by its value on the New York exchange market and recognised also that as trade conditions return to their normal state the concession of paper marks into gold marks may fairly be made on the basis of exchange rates between the United States and Germany it must be left to the , cornAssiort j to derive when to commence the operation of such rule of conversion and in the meantime to base the conversion of paper marks into gold marks on the basis of a sympathy with camodity prices ir the United States and Germany as an index with reference to relative changes from pre-war prices of such commodities. Paris, 4869, seven. -8 Cable at once whether you approve our taking position indicated. Eight. You will observe the soundness of our position as to method of conversion of German paper marks depends on whether proper table can be prepared as contemplated by subdivision C, paragraph six above. There are no experts here to prepare such table or to demonstrate that same could fairly be used as a basis of conversion of paper marks into gold the table papers in Washington. Believe that Gay's organization had compiled data needed in making up such table. Will you have such table prepared and cable me earliest possible time. Without awaiting comrletion of table I should be advised what commodities are to be used and fully the methods of converting paper marks into gold the use of the table and the reason why such methods will give an equitable result. Fine. Kent and Sterret have been this but lately and agree with it. Eent suggests that last clause of sub-division A, paragraph six above would be more clear if stated in foreign exchange terms as follows: 'Payments made by Germany in gold marks to be credited Germany succeeded to the percentage of deprecation in money of each country concerned as Paris, 4869. as measured by the rate for its exchange as quoted in the New York exchange market." Kent also informs me that large amounts of paper marks are being now sent in Holland and United States resulting from special buying in those countries and from Dutch purchases of marks; resulting guilder' have been used to purchase dollars and sterling. These transactions show that the mark is beginning to be dealt with more freely again in the world's market. LWR Rathbone. AMERICAN nissior. 5, RUE SCRIBE TEL:CENT.79-75 Paris, Oct. 27, 1919. Mr. Benjamin Strong, Governor, Federal Reserve Bank, 15 Nassau St., N. Y. all, -11919 DEC Dear Ben:- While I do not suppose it possible that you could consider from my letter to you, and the plan enclosed, that I believe that the exchange rates represent an exact parity of prices, yet as we are so far apart, thought I had better not take any chances of a misunderstanding, as it might make a difference in your opinion of my point of view. It seems to me that any bill which is rendered must be on as firm a basis as possible, and that gold of "present weight and fineness" is the only satisfactory measure possible to this operation. While due to local conditions commodities in different countries carry different price indices as reflected in depreciated currencies, yet due to the peculiar situation of the United States as a producing nation in connection with the requirements of the European countries concerned, I believe that the foreign exchanges will come nearer to giving a correct and fair solution of the problem than any other plan that can be devised. Their use in the manner outlined by me will also eliminate friction between the representatives of the various countries, that would be certain to occur should any uncertain methods of procedure be adopted. If price indices were taken into consideration, there would still be the necessity of using the foreign exchanges for the purpose of making a proper comparison, and I believe any such system would lead to endless bickering that might develop more bad feeling between the countries than anything else which could occur in connection with the work of the Reparation Commission. Germany is not going to be able to pay any more or any less because of the establishment of any complicated or other system, and I feel certain that if she is placed in position to obtain credit for depreciation of the currencies of the Allies as shown in their foreign exchange rates, it will be entirely fair to her, and she will receive all she deserves. The Reparation Commission has it within its power to analyze the bills for damages upon their presentation, and to consider prices of commodities and labor in the make-up of the bill. They can do this with far more certainty of exercising proper judgment if a fixed system of accounting and conversion of the foreign exchanges is to be followed afterward than would otherwise be possible. % 41114B. F. 2. Mr. and Mrs. Rathbone and their daughter took dinner with us the other night, and we had a very interesting evening. The meetings of the Commission have now started, and those of the Organization Committee, to which I was a delegate, are finished, for which I am very grateful, as it took so much of my time that I have been simply overwhelmed. Hoping this will find you well, and with sincere regards, I am, Cordially, FIK/MKS TOP 5, RUE SCRIBE TEL CENT. 79-75 Paris, Oct. 44 4919. DEC -1 1919 Mr. Benjamin Strong, Governor, Federal Reserve Bank, 15 Nassau St., N. Y. Dear Ben:- Dr. Vissering requested me to attend a meeting in Amsterdam, which he called for the purpose of considering the whole European situation. Mr. Keynes was there from Great Britain, and a representative from France. Mr. darburg was at the meeting, and a number of others. It was decided to hold another meeting on November 2, which will be attended by representatives from Norway, Smedensnd Denmark. Dr. Vissering asked me to write you in detail about the matter, which I gladly promised to do. Will, however, await the next meeting before doing so, as I can then give you a much clearer idea of the situation. In the meantime this will let you know what is going on. dish you might have been there. Sincerely yours, FIK/MKS J 5. RUE SCRIBE TEL Paris, Oct, 21, 191,94 Mr, Benjamin Strong, Governor, Federal Reserve Bank, 15 Nassau St., N. Y. DEC -11919 La, Dear Ben:- Since I wrote you last I have been simply overwhelmed, as I have been serving as delegate on the Organization Committee of the Reparation Commission, and have also made another trip to Belgium and ITOiland. It is only on that account that I have not written you. In connection with the work for the Reparation Commission for some reason or other cables have been sent that the delegate had made certain recommendations which had been agreed to after consulting me. As a matter of fact I have been the delegate, and have attended all the meetings, but I suppose my address being all Street made it seem advisable to camouflage me more or less. However, that is neither here nor there, but I thought it had better be mentioned to you confidentially, so that you would better understand the situation, During the meetings I made two reports, one depending upon the other, copies of which I enclose herewith. They were both cabled to the United States, except the table, which they did not feel could be very well sent in this manner. Athout the table I can readily see that the whole plan might not be understood, as it was drawn up for presentation to the Commission with the table as a part of the document, so that without it it is incomplete. Mr. Sterrett just called upon me, and showed me a copy of a cablegram which Mr. Rathbone received from Mr. Davis, in which he stated that he had consulted with you and Mr. Leffingwell, and that you all felt that the system outlined was not satisfactory and might not be fair in its operation. While the points raised by Mr. Davis in his cablegram were clear, yet it was also evident that you did not any of you understand the system, which was not at all strange, as you did not have the table. Further, the fact that the United States Government advanced funds to the Allies which helped protect their exchange during the war has no bearing upon the situation at present, as all the exchanges are free from effective government interference. * This being true, exchange rates are of necessity written into prices of commodities. For instance, if a French importer buys wheat in America at 12.00 a bushel, and he is obliged to pay 8 Francs for every dollar of exchange, he must sell his wheat in France for 16 Francs a bushel, plus his expenses, before he comes (see last page) S B. F. 2. out even. pith the censorship on cablegrams and letters removed, and the service becoming more and more normal, arbitrage of exOn this acchange and prices is getting more and more free. count dollar exchange as between France and the United States is finding its way into prices of articles that may be imported from Great Britain. Again, the United States must supply certain principal foods and raw materials to Europe for a considerable period, and the cost of living is largely based upon such articles, for luxuries are purchased from desire and not necessity. Establishing some positive system of figuring the exchanges does not prevent the Reparation Commission from considering price bases in any manner that they may desire for the purpose of ascertaining the ability of Germany to make payment as time goes on. From what T can gather in my study of this situation, which has been greatly extended since I saw you through many new fields and a going over of old ones, one of the greatest necessities of the moment is certain knowledge on the part of Germany as to what her maximum payment must be. If it is stated in a certain number of gold Marks of present weight and fineness, with a fixed maximum that is fair to all, it will be far better than if stated in any uncertain manner based on possible fluctuating prices of commodities. Such credits as Germany may receive from the Allies under the system that I have outlined will simply serve to reduce her payments as they are made, but will always keep before her a clean total amount that she will have to meet, except for any possible future credits. Then it comes to the question of the depreciation of the currency over gold, the foreign exchanges are one of the This is shown fairly well in the question of clearest measures. pension payments. The French representatives at the meetings stated that they were authorized to include pension payments in their bill for damages. They stated that on that account they must receive the exact number of gold Francs that was necessary to cover their pensions, and that their pension payments should, therefore, be carried into the bill on a gold basis without any deduction for exchange. I explained to them that if the plan I outlined were used, and Franc exchange as measured by the United States dollar was 50 discount, and Germany paid in gold Marks on a basis of 50% discount, so that France would receive 50 Francs for each 100 Francs presented in her bill, that the gold so received could be shipped to the United States and dollars sold for the proceeds, which would give the French Government exactly 100 Francs, less cost of shipment, so that even in this case, which they felt was the most difficult of all to consider from an exchange basis, it was entirely fair to France, as well as to Germany, to allow the exchange rate to rule. As long as it is possible to ship gold Francs to the United States and sell the proceeds in dollars on a mint par basis in Franc exchange, which is paid for in paper Francs, the dollar rate of exchange measures the depre- rip B. S. 3. ciation of the French paper Franc, and the same is true in Germany. Paper Marks are now being shipped to the United States in large amounts, and the dollars received are available for purchase of goods in the United States, for shipments of gold, purchases of securities or other forms of investment. If the price of goods in Germany as expressed in paper Marks should reach a point where it is profitable to ship paper Marks to the United States and sell them for dollars, which could be used to buy the same kind of goods in the United States for import to Germany, the operation would be continued as long as it was profitable, As the United States is a producer of such an immense number of different commodities, and articles, which go into the daily life of man, the value of the American dollar is a very real measure of the depreciation of the paper currency of the European nations, under present conditions. Any operations which the United States Government may have made in the past to temporarily help the exchange of the Allies now hang over that exchange so that such operations cannot be considered in the light of favoring the Allies over Germany in connection with reparation payments, will not write more at the moment, as I want to get this to you as quickly as possible. Sincerely yours, FIK/MKS * Understand there are still some funds available to France that were advanced by our government, but by May 1, 1921, when the bills for damages have to be presented, such funds will have Now that the blockade of Germany has been long been expended. raised, Mark prices in Germany are rapidly climbing to arbitrage levels, and there is evidence that long before May 1, 1921 parities will have been reached. r COPY-ND I. October 10, 1919. Charge to Treasury Department. NOT BY TIRI;ESS. SSION PARIS For Rathbone from Davis. Treasury R-4. Refer Mission's number 4469 October first to Secretary of State relative to accounting under Reparations Commission. 'While it is probably necessary for the reasons stated to carry the accounts in gold marks, I question the equity and soundness of determining such sums under the system proposed. Although I realize the difficulties in developing another workable basis and have no specific plan to offer now in substitution, it seems to me for the following reasons that some other basis of determining values must be worked out. FIRST: It is a mistake to assume that the depreciation of the mark Paper currency or its mark gold value can be ascertaired correctly through the dollar rate of exchange. It is also wrong to assure that the rate of exchange between dollars and marks and francs registers the relative depreciation in those two currencies. That might be Possible if the rates had been determined by natural comnercial transactions free of articifial restrictions. Such is not the case. Franc, sterling, and lire exchanges have been supported to a great extent by the Treasury while Germany hue been excluded from the world's commerce for five years and has had no means of supporting her exchanges. When such artificial factors enter into the determination of exchange rates such rates have no real economic significance. Men peseta exchange was selling at 28 cents it would have been equally fallacious to have assumed that the dollar had depreciated 50 per cent. It is doubtful whether the German paper mark hae less SECOND: relative purchasing power in Germany than the franc has in France. It is therefore more important to devise some plan for arriving at the value of commodities and services and the relative purchasing power of the respective domestic currencies than try to fix their depreciation or gold value in relation to New York exchange. This may be done by using commodity prices as an index with the relative increases from pre-war prices. THIRD: I do not understand where there will be any interchange of commodities with which the Reparations Commission will be concerned, where conversions of Allied domestic currencies into gold marks will have to be made. There are also few if any cases where German domestic currency will have to be converted into so- called gold marks. The coal, etc., to be delivered by Germany under annex five of the Reparation Chapter apparently may be paid for in German paper marks. In respect to materials, etc., to be delivered under annex four, to ships under annex three, and to the other items specified in Articles 236, 237 and 243 for which Germany is to be credited on reparation, the Reparations Commission shall determine the values and respective credits and may very well fix this in gold marks without any specific conversion process, by reference to the world value of such properties and materials. FOURTH: I do not quite understand the Proposed plan that each Allied country should compile a statement of its damage on the basis of - 3 MIP its gold currency and that the total should then be converted into gold marks at the mint par of exchange. The amount of damage assessed against Germany should, in my opinion, be calculated in the domestic currency of the respective countries, because most of the reparation of such damage (which will represent labor and local materials) will be paid for in such doMestic currency and not in gold. It may be expedient for account- ing purposes to convert these sums into gold marks. The damage however can not be restored or paid for for many years, and by the time this is °one there may be a considerable difference in the so-called gold value of the currencies which have been theoretically iireviously converted into gold marks. If, however, it is proposed that the calculation of damage shall first be made in the present paper currency of the country concerned, and then reduced to the gold currency of such respective country by determining the percentage of its depreciation in relation to New York exchange, and the sum thus found converted into German gold marks at par of exchange, it would probably be fair and just to all concerned, provided the rate of exchange on lew York would show the correct relative depreciation in such respective currencies which is moat doubtful. FIFTH: Germany will owe so much more than she can pay that it will be a very unjust, shortsighted policy for the Allies to attempt to purchase German commodities deliverable under annexes four and five and six of the Reparation Chapter at less than their real value by taking advantage of her abnormally low rate of exchange and taking the domestic price in paper marks as a basis for conversion through dollar exchange into so-called gold prices. Naturally the mark has a greater purchasing power in Germany than abroad, likewise the franc. The determination of pre- war prices for German commodities such as dyestuffs figured in marks V- - 4 can only be properly made by ascertaining the relative eurdhasing value of such pre-war marks. SIXTH: I have discussed matter with strong and Leffingwell who agree substantially with may views and also briefly with sailed yesterday. ing out a plan. terrett who Sterrett should be of considerable assistance in workIn the meantime suggest you discuss question with Kent with a view of his working out plan more on lines above indicated. Hope you can defer action until Sterrett arrives and then determine on whatever plan you think best after discussion with him and Kent. R. C. Leffingwell. (Signed) Assistant Secretary of the Treasury. NHD:HB:ND PLIII Paris Dated lot. 1, 1919. Lead. ct. 2, 4 AM. Oeoretary of !'tate, Tashington, D. C. 4469. ,:)ctober 1, 10 Pr. American representative, who is being assisted by 7r. Fred F. -ent, or subcommission of Interim Reparations Commission considring the methods of accounting of the Reparations Commission, has tentatively presented following nemorandum to committee as showing American position; "Heading: coney of Account. The accounting of the Reparations Commission should be carried on in gold marks for two principal reasons. First. Ir, order to be able to follow the terms of the neaoe treaty with such certainty that no misconception oar: ever be placed upon any operation fa 4 of the books of acoount, the kind of money nominated in the treaty, mmely 'gold', should be used. second. For greater convenience, be- cause the separation Commission, after determining prices in each of the Allied countries of commodities exchanged and the amount of damage to be assessed Germany in the currencies Of etch Allied country on a gole basis, will have only one conversion to make, and that di-. rent into gold marks. r of :40itn 4469 Faris Subheading: rethods. With the accounting established in gold marks, it is desirable that a system of oonversicv of foreign Rare rency into Bold marks be dfcided anon that is ail:rile and eositive in it& operation, and that is beyond 7)ossible otaticism. The best means to this end is tocnerate under the followinr system: gold values of the currencies of all of the illies should be used, all conversions being made at the gold rates of exchange (mint pars) from the currencies concerned into German gold marks. under this system it will devolve unon the eparation Comission to establish the orices of comrodities (which it must do undrr the terns of the treaty) in the gold currencies of each country. This will necessitate the conversion of prices as ascertained in the paper currencies of the Allies into the gold of the same moneys before such moneys are converted into gold makks. The percentrAre of derreelation of such currencies should be ascertained through the dollar exchange, for reasons which follow. Prises which are ascertained in mark paper currency should be converted into mark gold by obtaining through the United rtates currency the 7rcentage of depreciation of the mark paper currency. 'ach Allied country, when comellinp a statement of damapesle,,,4 should do so on the basis of its gold currency, and the total ,rould "f.,7 - 3 . ?lain 446 A of Aopreelation as the operations of the Leparation Commission take niece. Again, because of the fact that the t'nited Ctates payer dollar and gold dollar have the same buying power in the ;;kited "Ttates, lil- ted Mates dollars renresent the only point that might be called stable from which to figure the Percentage of depreciction in the currencies of the other Allies. united ;' totes dollare, therefore, can effectively be used as a basis for ealeulation. rates of exchange under present conditions are fluctuating in large percentag s, not only from day to day but during the business hours of each day. TT; es7ablishing a rate in dollars from whio% to figure the depreciation in other currencies, it would be necessary, therefore, to accept thP rates of some ;.articular time of dap. Fortunately, ire connection with other matters an official rite is being established at 12 o'clock noon of each business day by the Federal reserve Bank of rew York covering the currencies of erincioal Allies. The establidamert of suoh official rates can be extended to include the currencies of all of the countries necessery, including Vraany, which will vivo a positive and properly established firm rate of exchange to act as a basis for all calculations. The Federal Reserve Lusk of r:ew York would un- doubtedly be glad to furnish the reparation Commission with an official cony of such rates at the*, are establiehed from day to day. In view of ;act that the iederal 7.eserve Bank of Yew York does establish official Tatra daily at 12 o'clock noon, it would be more effective and work with greater Notice to all concerned if recommendation be made to the epantion Commission thLt the conversion rites for each transaction be those of the day of its consummation, and ___A - 4 Plativ.44N Parse 4 not those representing a monthly average. By so doing it will not be necessary to wait before making calculations until monthly average ratescan be ascertained, nor to accept the average rates of the previous month, which might be entirely out of line. results. Surmarising general 71th accounting in gold marks and conversions from Allied moneys into gold marks being made at mint pars of exchange, and nerCenteges of depreciation of currencies being ascertained through the Ftates dollar based on official rates established by the Federal 7eserve Bank, a smooth working, prectioal and legal eyutem would have been established. beyond controversy. The mint pars of exchange are fixed points The treaty of T'eaoe dist'netly authorised the 7 eparation Commission to establish prices and wit: no instructions to- the contrary, their determination in the gold currencies is legal beyond toubt. Througn the establishment of prices in thr gold moneys which are to be converted into the gold mark, the Reparation Commission wouli, be 17] :,osition to operate with positive justice, as the price when arrived at would be the exact price which would be converted into money of account. By taking the official rate of the Federal reserve Bark of Yew York at 12 o'clock noon of each day, the cVterminatior of an average rate which otherwise would have to be established from mere opinion as to what constituted an average rate of a day would be eliminated, and the di.ferences in time which exist b"tween various foreipm exchange centers could never be broupht in throuph argument t40-: throw uncertainty u'on an: exchange rates selected." 5 - 'lain 4469 Paris Our delegates' opinion that this 92'0-n:teal will be accepted by subcommittee and reported to Interim !eparations Commissions with their a woval. Request this be referreo to strong of Federal T,eserve tank for his views and then taken up with TreLsury Department for its an9roval prior to cabling :rpartment's loproval or modification of :merican delegates' position. strong fully conversant with latest chases this question and his views therefore considered of great value. uestion will hzve passed through subcommittee and will come up for consideration Interim lenaratlons Cow:lesion in a-