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Hon. W. J. Bryan,
Secretary of State,
August 14, 1914.

Hon. Wm. G. McAdoo,
Secretary of the Treasury,
Washington, D. C.
Dear Mr. Secretary:-

Referring to our conversation this morning, Mr. W. L.
Kidder, Peabody & Co., and kr. Benj. Strong, Jr.,
the Bankers Trust Company, submit the following memorandum statement of a proposed method of opening necessary credits
at various points in Europe for the benefit of American travellers
who are unable to obtain cash on their letters of credit and travellers' checks:

Benedict, of
President of

The Bankers Committee of New York will direct the Bankers Committee of London to set aside out of the three million dollars gold shipped by the bankers on the Cruiser Tennessee, such
specific sums of money as are required to protect guarantees given
by the United States government through Ambassadors or Consuls at
various points, for the purpose of furnishing cash at those points.
The amounts so set aside in London out of the three milbe held subject to the control of
Ambassador Page at London, under instructions from the State Department, and will be in addition to the government fund applied
to the relief of those whose resources are exhausted.

lions of gold shipment, will

The State Department could then cable to the American
Ambassador at Rome, or to other Elnbaseies or Consulates, directing
that the government give its obligation for the amount of money desired at that point for payments on travellers' checks and credits
which would be disbursed by the Ambassadors or Consuls, of ir preferred, through suitable banking agencies appointed by the bankers.

As payments are made out of the funds placed at the disposal of Ambassadors and Consuls or banking agencies, the evidences
of payment in the shape of drafts, letters of Credit, or travellers'
checks, will be transmitted to the Ambassador at London, and he, in
cooperation with the London committee, will reimburse the government out of the fund set aside in London for that purpose.
We are informed that the office of the London committee
is well organized with skilled clerks, and in charge of experienced bankers, the chairman being Mr. F. I. Kent, Vice-President
of the Bankers Trust Company, New York City, who has had many
years' experience in handling foreign exchange and letter of credit transactions. Our committee feels every assurance that on the
scheme above outlined the government will be fully protected, and
these payments can be promptly made.

Respectfully submitted,

Committee of

New York Bankers.

August 20, 1914.

Hon. W.J. Bryan,
Secretary of State,

ky dear kr. secretary:It has not been possible until the present time for me to

write, as I had hoped to do, making some explanation of the urgency which developed in regard to the protection of travelers' credits held by our countrymen in Europe, and furthermore the reasons
for my assuming that no effective measures for their protection

could be undertaken without cooperation of our Government.
Travelers' Cheques and Letters of Credit which are issued
by American banking institutions and bankers total many millions
in the course of one season; some institutions which make sales as
high as $30,000,000 or $40,000,000 annually have outstanding at one
time from $5,000,000 to $15,000,000 of these credits which may be

cashed at the election and convenience of the travelers in any part
of the world. The banks which issue them are unable to anticipate

in what volume

they may be cashed at any given point, and they are
accordingly issued under banking contracts, by the terms of which
the foreign institutions which make the payments on the credits receive reimbursement by drawing drafts on London at the rate of exchange current at that place on the day the drawing is made. Without this method of London reimbursement it would be necessary for
the banks issuing these credits to carry very large balances in a
great many cities, the total being far in excess of the total credit outstanding, and naturally the business would be unprofitable,
as it would absorb too much capital if conducted on

that basis.

soon as the crisis in foreign exchange occurred and it
that London reimbursement was likely to be disarranged
be absolutely discontinued, it was apparent that those
Continent which were in the habit of employing London
reimbursement under these contracts might in many cases discontinue
cashing cheques. In order, therefore, to meet this situation (quite
unprecedented in the history of banking) two methods of procedure
only were possible; one was to ship gold directly to all points
where travelers were congregating and would be without funds, and
the other, to establish banking credits at these points, through the
agency of the United States Government, which would enable the local
banks to make payments on cheques and drafts.
became known
and poasibly
banks on the

The procedure which has been followed of

shipping gold to
London as the base from which these credits might be established at
different points on the Continent, has, I believe, been effective
in relieving a situation which might otherwise have become so distressing as to have caused intense suffering on the part of our citizens in Europe. In fact, the mere knowledge that a shipment of
gold was being made in a United States war vessel had an instant
effect in releasing money to our travelers even before special credits had been established. It has been possible in some places to
establish credits against reimbursement out of the gold shipped to

HOn. W. J. B. 2.

London, and in other places, against deposits in New York, muai
more readily than would have been the case had a mere promise of a
gold shipment been held out to these foreign banks.
Prior to the writer's first trip to Washington, when he
had the pleasure of meeting you, a number of the leading institutions and firma in New York were asked to make verbal commitments
to furnish gold for the purpose of protecting these credits and
insuring relief payments under such plan as might be developed.
The response to this appeal was an immediate pledge of about
$7,000,000, which could have been largely increased had it been required, as some thirty-four firma and institutions have now participated in the fund. All of this fund was contributed with a view
to cordial cooperation with the Government in relief plans.
The bankers who participated in this fund realized that
although there are probably hundreds of institutions in the United
States issuing letters of credit and travelers' cheques,it would
be impossible to secure their cooperation in relief plans of this
character in time to make them effective, and they therefore furnished the fund, not, as has been once stated, for the protection
of their own credits, but for the protection of all American credits issued by responsible concerns, irrespective of whether those
firms were contributors to the fund or not.
have disclosed the fact that a large number, if not all of the ten
original contributors who practically underwrote the funds, were in
little, if any need of taking measures of this character for the
protection of their own credits, as the larger institutions, better
known abroad, had much less difficulty in making direct financial
We will, of course, hear of many cases of hardship, and
possibly many complaints, but the course pursued has, I believe,
reduced these to a bare minimum, and a continuance of the policy
of opening credits where necessary, either against deposits made
in New York, as will probably be necessary in some cases, or against
the gold which has been shipped to London, will gradually furnish
all travelers who have credits with means of paying absolutely necessary expenses and obtaining transportation home.
It now seems apparent that the three great objects to be
accomplished, namely, to relieve the distress of our friends abroad;
to demonstrate the ability of our Government to afford relief to
its citizens in such a crisis as the present one, and to protect
the credits of American institutions which were obliged to meet the
obligations to their clients in Europe, are all in the way of accomplishment, and in behalf of many of the bankers in this city, who
have felt a grave responsibility in this matter, I now beg to convey
to you our warm thanks for your hearty cooperation and the repeated
evidence of your confidence in our plans and purposes.

With cordial regards, believe me,
Respectfully yours,


Benjamin Strong,







January 12, 1916.
To the

Diplomatic and Consular Officers
of the United States of
America in England and France.

At the instance of the Honorable Wilbur J. Carr,

Director of the Consular Service, I take pleasure in
introducing to you Mr. Benjamin Strong, Junior, Governor of the Federal Reserve Board of New York, who
is about to proceed to England and France.
I commend Mr. Strong to your attentive considera-

tion, and shall appreciate any courtesies and assistance which you may find it possible to extend to him.
I am, Gentlemen,

Your obedient servant,




Jantulry 17-, 1916.
'y dear Mr. Secretary:

Ur. Carr has just sent me the note you were
good EtioukTh to IsAlte,-s to our Ambassador at Paris, which

I shall take great pleasure t., pre3emtin3 to him, and
now write to think you for your co1rtes7 in oroviaIng
me the opportunity of meeting him.

I anticipate beinr in London abo.ut - week or

en days and substantially the sIme 1ew7th of time in

If I can be of any service to you or your -as-

sociates in connection with my trip, I trust you will
not hesitate to commang
With oerooml L-egards, believe me,

Very truly yours,

jonorable Robert
Department of State,
WashinAon, D. C.


S S S Washington 121 102/100 1/"72/70

2629 Legri for Ginn from Rathbone Treasury

Following is for Benjamin Strong quote Two

Have received the following cable dated 17th from Netherlands
Bank quote First lot approximately 20,000,000 gold marks completed gross
kilograms 7943 grams 9(76 ounces 2,71r2.3 coins are genuine are weighing
second lot quote This was confirmed by State Department


The following cable dated 19th 5,*2x Netherlands Bunk quote
your cable 16 gold Germany said to contain 52-07,6950,0D0 marks 1,554,5op
sovereigns 18,3('.0,-00 Austrian crowns 5,500,00C' roubles 1,799 barrels
fine weight 21,837 (moahg not moahc) ki/agrame total 440,,Ir,0 gold
marks We can roughly weigh total in 30,402 margin 1/20 obwos for obwoh)
our reepon ibility stop pending your instructions we continue accurately
weighing gold coins as heretofore and will telegraph result every lot
approximating value 20,000,-.00 marks unquote

5. Have not replied to this cable but hold it in abeyance -waiting
instructions from you.
Your cables 2 and 3 received (ivwep) in plain English we understood you would use Bentley's code and test word.
Duplicate of this cable sent to London

Federal Reserve Bank




September 24, 1921.

Dear Mr. Secretary:

Sir Charles Addis

During the few weeks when Mr. Montagu Norman and

were visiting this country, one of our own officers, Mr. Pierre Jay, was
ing abroed and. had occasion

to make a short

stay in

He has been fully


acquainted with the substance of our discussions in Washington on
of the very desperate

conditions no developing

this situation be has just sent me a

Hoover that'we

this matter I

have finally received. word.

can expect no &finite statement from the Adminis-

that the Federal Reserve Bank of New York

should join with



other si

character being

later rendered.

I hesitate to suggest encroachment upon your time \then I

I am in Washington

which we made

L. study of conditions in Austria with a view to sore

assistance of a non-political

closely engaged, but


in Austria, and. bearing upon

tration, either affirmative or negative, in regsrd to the

tutions of Europe in aseing


cable of which a copy is enclosed.

Following our discussions of


if it is possible for me to see you for a

this week or it week I should greatly

Snow you are

few minutes when

appreciate- an opportue

nity to discuss this matter a little further.

With assurance of we esteem, believe me,
Faithfully yours,

Honorable Charles E. Hughes,
Secreteryof State,

Benj. Strong

Washington, D. C.

P. S.

from the

Since dictating the aboie I have received. a

Governor of

the Bank of EnglaLd, copy of which is

confidential aabld

also enclosed.



3o1tenber 20, 1921.

ki dear Lr. Secretary*

in.L note of Ceptaber 26 hao just readied me, and

I hasten to advise you that friday aftanwon at

ot ()look

suit re entlzely, and

sLall call at Ietir off.loe at that Lour.
nth asec.rance o
teer.., I wh,
Very truli yo1.4.8,

4stki. 6trouis

Honorable Chrles E. linahess

Secretary of :itate,
"ashinGton, D. C.






(4 6

14 dear Ir. Strong:

Your letter of 6eptember 24 has been

It will give me much pleasure to see

you, and if it will suit your convenience, I
shall be glad to have you call on Friday afternoon, September 30, at 4 o'clock.

With high regard, believe me,
Very sincerely yours,

Honorable Benjamin Strong
Governor, Federal Reserve Bank of Lew Yor
Room 181, Treasury Building,
Washington, D. C.


October 31, 1921.

Dear Mr. Secretary:
Referring to our

confidential conversation in regard to certain

Japanese matters, I have recently been advised that my friend, Mr. Eigo Fukai,
Deputy Governor of the Bank of Japan, has been appointed financial adviser to
the Japanese Delegation to the Conference on Limitation of Armament.
Mr. Fukui is one of the ablest and best informed men that I met in


He speaks English perfectly, was financial adviser to the Japanese

Delegation to the


Conference in Faris, and has occupied important

positions in the Haat of japan, both at home and in foreign countries.

Matzukata, who, as you will

a young mau he was private secretary to Marquis
recall, was


the economist and financial expert of the Genro and one of the

two living member of that body.

I have such confidence in his frankness, good judgment and integrity

that I am taking the liberty of inquiring whether you might find it interesting and profitable to have

a talk with him personally during his visit in

this country, and if so, if you would permit me the privilege of giving him a
letter of introduction to you.

That may not indeed be
thought I have in

mind, and you

necessary as this letter conveys to you the
doubtless will

see him during the sessions of

the Conference.
Permit me to refresh your memory with regard to the relations between

this bank and the Bank of Japan, which I described to you
with which tin. Fukai is fully goquainted.

in your office, and

I beg to remain,

Faithfully yours,
Honorable Charles E. Hughes,

Secretary of State,
Washington, D. C.
Federal Reserve Bank of St. Louis


November 7, 1921.

My dear Mr. Secretary:

This note will be presented to you by tr. Eigo
Fukai, a warm personal friend of mine, and Vice Governor

of the Bank of Japan.

gr. Futai is financial adviser Co the Japanese
Delegation attending the Conference on Limitation of

If time permits you to receive a call from him,
I feel sure that he will be much honored and greatly
appreciate the opportunity of meeting you personally.
With assurance of my esteem, believe me,

Faithfully yours,

honorable Charles E. Hughes,

S,acretary of State,
Department of State,
Washington, D. C.


March Q, le22.


Dear Mr. Secretary:

Ybu will duubtless recall our conversation in regard to


banking relationship of importance which had been established tvc or

three years ago by this bank- with a state bank of an important nation.

I thought you would be interested in learning that our
correspondent has advised us of their intention to withdraw one-half
of the balance maintained with us, which will be gradually done over
a i:eriod of :leeks or months.

This refers only to the balance main-

tained with this institution.
The transaction has no special significance.

The withdrawal

is due to the fact that the balance of trade has been running rather

persistently against that country, and it is necessary for Cue state
bank to furnish dollar exchange to their importers in order to avoid

an increasing discount on their on currency.
4ith assurance of my esteem, I beg to remain,
Yours very truly,


Honorable Charles E. Hughes,
Department of State,

fashington, D. C.


March 16, 1922.

my dear Governor Strong:I have received your letter of March 9t44/


and I am indebted to you for sending me thie in-

formation with respect to the withdraw42of a
part of the balance to which you refirred in
your conversation with me.

I shap be glad to

have any information which you/ban give me from
time to time in relation to /the matter.

With high regard, believe me
Very sincerely yours,

Benjamin Strong, Esq.,

Governor, Federal Reserve Bank of New

New York, New York.




March 16, 1922.

my dear Governor Strong:-

I have received your letter of March 9t4/
and I am indebted to you for sending me
formation with respect to the withdra

tkis in-

of a

part of the balance to which you re4Arred in
your conversation with me.


have any information which you/tan give me from
time to time in relation to/the matter.
With high regard, believe me

;Very sincerely yours,


Benjamin Strong, Bsq.,

Governor, Federal Reserve Bank of New irk,
New York, New York.


April 3, 1922.

Dear Mr. Secretary:

I am leaving for Olashington to-night, and hone that during

the few days that I shall be there it may be possible for you to
spare me a fee minutes.
Of course I know how closely engaged you are, snd if it

would be more convenient, I would be greatly honored if you are

able to lunch with me snd thereby save your ofPice hours.

I shall take the liberty of calling your secretary sometime to-morrow.

pith cordial regards, believe me,
Yours sincPrely,

Honorable Charles E. Hughes,
Donartment of State,

lashington, D. C.



November 3, 1921.

My dear Governor:
I thank you for your letter.

It will

be a pleasure to meet Mr. Fukai, and I shall
be glad to have you give him a letter of introduction.

You may be assured that I shall

not forget what you told me with regard to
the relations between your bank and the Bank
of Japan.

Faithfully yours,

Honorable Benjamin Strong,
ederal Reserve Bank,
New York City.


November 7, 1921.

My dear Mr. Secretary:

it is very kind of you to permit me to send a
note of introduction to Wir. Fukai, which I am taking the

liberty of doing to-day, a.,nd he will no doubt communicate
with your secretary in regard to an appointment.
Trusting that I am not encroaching unduly upon

your busy days, I beg to remain,
Yours fai thfully,

Honorable Charles F. Hughes,

Secretary of State,

Department of State,
'Washington, D. C.


April 14, 1922.
Dear Mr. Secretary;

There has been, I regret to say, some unavoidable delay in preparing
and sending to you the enclosed memorandum./which I

you in 4aehington.

promised to do when I last EAN

It is, of course, a matter to which I expected to give

considerable further thought before writing.
Permit me respectfully to make

the following

comments in regard to the

vies contained in this paper:
In almost every discussion of this

important matter which I have had

with various people, it developed that some special interests tend to influence
the opinions of those who are inclined to criticise one policy

or another.


may be a banker vho desires to realize commissions on foreign loans; it may be a
manufacturer vho has

lost an export order, and is thinking of his on foreign

trade; or again it may be a merchant, exporter or banker who has unfortunately
been unable to collect debts owing for goods


You will, I hope, realize that

heretofore exported to foreign
no interest of this character has

influenced the views which we hold at the bank in these important



is our earnest desire to see the American banking system and the wealth of this

of the

make a


just, effective and even a generous contribution to the restoration
trade, upon

which the prosperity and happiness of so many of our



own citizene depends.

Permit me also to invite your attention to the enclosed listAhich is
fairly complete, exhibiting the foreign loans placed in this country during the

past fifteen months, and to call your attention to the evidence therein contained
of the careful discrimination with which these loans have been sifted out by our

bankers before they have been offered for sale.

There seems to be no evidence

April 14, 1922


of a reckless plunging into new fields.
proportion of the loans extended to

It is especially notable

that a large

France are for refunding purposes, and

vith the exception of the French, and possibly


the Belgian loans, there seem to be

none to 'blob restrictions, such as are discussed under Heading II of the memorandum, vould apply.

As I have had occasion to discuss these matters

with both Secretary

Mellon and Secretary Hoover, I am taking the liberty of enclosing two spare copies
of the

memorandum in case you desire

sending another copy

directly to

to send copies to them, and I an likewise

Assistant Secrt:tary Harrison at his request.

Apologizing for asking you to read this long document, and with assurance
of my esteem, I beg to remain,
Respectfully yours,

Benj. Strong,


Honorable Charles E. Hughes,
Secretary of State,
lashington, D. C.
ES. M?





This is the memorandum prepared by Governor
Strong and submitted to Secretary of State Charles
Evans Hughes as an enclosure with his personal letter
fated Anril 14, 1922, copies of mhiela were forwarded
y Hughes to the Secretaries of the Treasury end
Commerce (Mellon and Hoover).


The purpose of this memorandum is to discuss restrictions or partial

restrictions upon foreign loans in the American market, designed to
Influence or require the borrowers to expend the proceeds for goods
produced in the United States; or

Influence the borrowers (when governments) to bring their national

budgets into balance and reduce unproductive expenditure.

Many of those Who object to opening our market without restriction to
foreign loans claim that "the 'money' is beinc spent elsewhere than in the United
States," and frequently refer to these loans up "exports of

American capital."

They believe that by requiring the borrowers to purchase American goods our exports

Consideration of present

will be increased.

of the objection are fallacious; and that our

conditions discloses that the grounds
trade would suffer rather than improve

as a result of such requirement.


foreign government or its citizens borrow in the United States, the

credit of the

proceeds of the loan are placed at the

citizens in American banks.

foreign government or its

There are only three possible uses which may be made

of that credits
(Under normal conditions) gold might actually be withdrawn


United States by the


Debts already contracted and owing in this country may be

repaid out of the



qoode produced in this

country, or the services of kmerican

organizations or individuals, or American investments, may be paid
for out of the proceeds.
As to (a).

So long of gold.
The export as foreign currencies are at a

discount and American dollars at a premium, it is impossible, without loss, physically
to withdraw gold and export it.

This may be shown by considering the position of



the French, (a more extreme case than the Faglish), with the franc at a discount of
50% measured in dollars.

If the French Government borrowed a million

dollars in

the United States and withdrew the gold to France it would get a credit at the Bank
of France equal to only one-half of the number of francs for which the million dollars
would otherwise sell In the exchange market.

In other words, that amount of gold,

if coined into ten and twenty franc pieces would only produce at legul tender value

one-half of the number of francs which could be realized by selling the dollars in

the market at current quotations.

EV621 the French Government, or the Bank of

France, could not afford under present conditional to import gold

or build up a gold

reserve by such loans because of the large loss involved; nor can any other nation

Its citizens) afford to import gold from the United States so long as their

currencies are at any considerable
planation of

the shipment of

to this country.

discount expressed in dollars.

the entire current gold mine

That is the ex-

production of the world

It may in fact be definitely and safely concluded that there can

be no such export of "money" in the form of gold or of American currency which is
redeemable in gold.

The other rasa= (b) and (c) of employing the proceeds of such

loans must be ensinined if justification for restriction (1) is to be found.

As to (b).

The payment of debts already contracted.

Those Who have

entered into commitments in the United States for the purchase of goods or for any
other purposes, are enabled as the result of these foreign loans to buy dollars
(exchange) in the markets which otherwise would not be available.

This does not

mean necessarily that the nations, or their citizens, which borrow in the United

States are the only ones who are thereby enabled to pay debts in the United States.
A foreign government which borrows

and obtains a credit hero umay indeed have its own

debts to pay in this market, but if it has no such indebtedness to pay, it may have

debts elsewhere

and in order to employ the credit in paying debts due elaewhere, it

must draw upon that credit.

This is a normal process in banking:

In case,



the French Government had debts to pay in London, it would probably sell dollars

in London (or in Paris) in exchance for sterlinc, in order to repay indebtedness

It would simply sell to London bankers checks drann upon New York and the

London bankers would thereby secure

the transfer of the credit to their own accounts,

and would be in position to furnish their own customers with dollars with which to
ppy what they owed in our country.

The mechanism of exchange is so effectively de-

veloped and operates al promptly that but very few days would be

required to enable,

say, the French Government to realise in London upon a large dollar credit obtained
in New York, and so enable British

debts in this country.

traders to make equally prompt payment of their

The proces might be further extended if the British em..

plowed the dollars to pay debts In some other country, which country was in the market

for dollar credits with which to pay for goods purchased here, or to pay their debts
owing in this country.

From the standpoint


liquidation of debts, a restriction

upon foreign loans mould operate directly to reduce the amount of dollars otherwise

placed at the disposal of foreign
indebtedness now

borrowers, and thereby defer liquidation of so much

or hereafter owing to our merchants and bankers by the world at large.

As to (0). The purchase of goods in the United States.
operates in the case of credits
the borrower

to purchase

The same prOOOSO

resulting from loam which are not directly used by

goods and services in the United States.


credits are

promptly sold by the borrower and converted into the currency of some other country
where purchases are in fact made.

Assvam again that the 'Preach Government borrows

a million dollars in New York to enable it to buy goods abroad, but not in the United
If the goods are purchased, say, in Argentine, the dollars are sold in the


exchange market and the proceeds are invested in pesos so as to pay for Argentine

The French bankers who buy the dollars and furnish the pesos then dispose of

the dollars to French importers who do purchase eoodii in the United States, or they

may again, as in the cane cited under (b) be sold in other markets, as, for instanos,

-- in London, when again the British importer has dollars for the purchase of American
eotten or other goods.

The fact is that credlt, speaking strictly, cannot be exported from the
United States.

The only things which can be physically exported are cold, (when the

exchanges are operating normally) or, under present conditions, goods and services.
There is no possible moans, except the exchanges permit gold
American producer can be deprived ultimately of the

exports, by which the

advantage of the application of

such borrowed dollars or credit to the purchase of American goods, or to the payeent
of debts

owing in America, unless, as

is quite unlikely, the borrowed funds are in-

vested in America In one or another form by foreign


It is claimed that

In the absence of restriction the indirect process of transfer, above described,
operates slowly, is obscure, and may not be ultimately accomplished.
Is not a sound conclusion.

Ws, however,

nth.dollars at a. premium throw/lout the world, those

having dollar balances in this country earning

nominal interest geala

unless they

are willing to suetain heavy loss, employ them at once in paying debts or buying

They may be, and

frequently are, tqpporarilv

invested, pending other use.

The interest charges on loans are heavy and the interest alloyed on bank balances

are (mall.

Furthermore, foreign currencies are now

appreciating relative to the

dollar and the retention of idle dollar bank balances by foreign borrowers is liable

also to result in exchange losses, making an added inducement to their prompt
cation either in paying


debts or In buying goods; or inducing their prompt sale to

others for such AIMS.

It is claimed that eases are frequently cited where orders for American
goods have been lost because of the failure to stipulate in loan agreements "for.
expenditure in the United States."

It is well to examine the effect of the require-

ment generally upon the trade of the country if these pleas are to be regarded.


exports of the United states are not only manufactured goods, they are grains, food
stuffs and ram materials as well.

Furthermore, it is not the exporters alone VDO



are interested in the question of free borrowing versus restricted borrowing.

policy of restriction affects

all producers - those who export and those who do not

It also affects American creditors including the Government of the United

Lace of purchasing power on

States, which itself has debts to collect from Europe.

the part of many countries to-day contributes considerably to the existing depression
in the United States and Europe, and it is by such credits as are now being extended

to inrope that this purchasing power is

slowly being restored and the cycle of pro-

duction, exchange of goods, and consumption is being rebuilt.
If eemplaint is made that the manufacturer of electrioal machinery loses
an order for a power plant to

be erected in so ne foreign

country because of no re-

striction, it may with equal force be claimed that a restriction

requiring the power

plant to be purchased in the United States might indeed result in no loan being
placed here at all.

In this event an American cotton, steel or copper or other ex-

porter might lose the opportunity to export his product to some foreign country.
the exportation of cotton or copper, and all other goods,


generally facilitated by

these foreign loans, the electrical manufacturer might well be called upon to


aower plants in the South or 'Witt which would otherwise not be ordered if American

cotton or copper was not exported, and the cotton or copper industries were languishing.
ltat has been taking place during the last lb months becomes apparent when
all the circumstances are examined'.

lb have imported sines January 1, 1921, seme

t800 millions of gold, and In addition have extended loans to foreign
gregating about t1000 millions.

countries aga

tale aum of these two plus the Value of our imports,

of our remittances largely for American

travellers, or

by our alien population, to-

gether with other items of less importance, have in total supported our export trade.

Any restrictions imposed upon these foreign loans, which would require the foreign
borrowers to buy certain goods in this market at higher prices than the same :Imes
ould be purchased in other markets, will simply have the effect of reducing loans


in our markets, (declined as the result of such restriction) and to that exact extent
will reduce the amount of our prospective exports of other goods or will defor the

prompt collection of current unfunded debts which would otherwise be paid here,

It must further be borne in mind that a restriction upon the amount of
foreign loans placed in our markets will
payments made

to us in gold.

have a tendency to increase

The extension of credit to

the amount of

a foreign borrower is in

effect the employment of that amount of credit upon the basis of existing gold re
It is a consumption of existing lending paver rather than (am in the ease


of gold imports) the creation of new lending power.

cold reserve and to our lending Dover, and

increase the

danger, of possible future

excessive expansion of credit, with all of the evils of speculation, extreme fluctuation of prices, and consequent disorder in the commodity markets, such as have been
recently witnessed as the result of the mar inflation.

In the general interest of

the country as a *hole, and entirely apart from considerations of the

relative effect

on foreign countries needing credit, it would be better for us to increase our capecity to sell goods abroad by use of our already immense power to extend credit, rather
than still further to increase (but not use) that lending power by the importation of
mare gold.

It is my belief, therefore, that a restriction of the character now being
discussed will result in a reduction of our export trade just to the extent that the
restriction attempts to require borrowers to buy goods in this market at higher
prices than they can be obtained elsewhere, and so defeats the negotiation of such

Prices control where trade goes.

A lower price, even of 1/2 cent a bushel

for wheat will result in a borrower of American -dollars buying wheat in Argentine;

but the purchaser of the dollars will in turn buy cotton or some other commodity here'
which can be had at prices competitive with other torld markets.
the dollars can be made, save to pay


No other use of

lbuld it not be a sounder policy


enlighten those -who complain of the lack of restriction, rather than to answer their
complaint by enforcing a policy which will restrict the total, of Arerican exports.


The imposition of the restriction for the purpose of influencing foreign
governments to reduce budget expenditures for military or other unproductive purposes,
is, of course, a political question upon which American

business men will

be reluct-

ant to express views, especially as it involves the political relations of our govern

sent with other governments.
All of the arguments, however, as to theefect of such a restriction upon

our export trade apply equally

to restrictions imposed for the purpose

of influencing

foreign governnents in their domestic policies, and here again, I believe, a misconception has arisen as to just what happens in connection With such loans.

For purpose of illustration, let us assure that the loan to the Department
of the Seine, France, was admitted to have been made for the purpose of balancing the
budget of 'the City

of Perin, and that the expenditure causing the budget excess over

revenues was due to the maintenance of an abnormal and uneconomical payroll by the

City of Paris, which could not he defended
loan from the tandpoint
American trade.


upon economic grounds.

the American trader vas nevertheless

to the advantage of

The City of Paris could not meet that payroll by teporting.dollars

from the United States and paying them to civil employees.

The result of the

It had to convert the

into francs by selling the dollars in the Paris market, and those W30 pur-

chased the dollars had to expend them in the United States, or sell them to others
) would do so.

From the standpoint again of our

export trade, a

requirement that credit

borrowed in the United States must not be employed for unproductive purposes by the

foreign governments

might well mean that all foreign governments with unbalanced

budgets 41142 which are spendin6 money for unproductive purposes *i11 be unable to


borrow in this market, and in consequence the American export trade will be cut down by

the exact amount of all such loans as are thereby prevented from being placed here.

It is in effect stating to suet foreign goverment, that, unless they put their financial houses in order, we will not sell goods to them or even to those to whom they

mny sell the dollars they borrow in this rerket.

This will certainly check the in-

crease of our export trade, that is, prevent its expansion by the amount of such loans
as would otherwise be negotiated in this country.

All of those general/7 familiar with the budgets of certain foreign nations
know that conditions of trade and finance throughout the world will continue to remain unsettled until expenditures by certain governments are reduced, the printing of
currency ceases, and the foreign exchanges return more to normal and are less exposed

to violent fluctuations.

But can these most desirable objects be accomplished by

declining to sell American goods abroad, or in any way restriction loans which enable
the sale of American goods abroad?

Certainly any foreign government with an un-

balanced budget would view with consternation a policy by our goverment of restricting
our imports from that country.

tehe most effective method of influencing a foreign

government would, in my opinion* be to call for a prompt payment of debts which it

say owe to our government, unless it spates more energetic and successful measures
to the reduction of unproductive expenditures and to general financial and monetary

Yet here again the requirement that a foreign nation shall begin paying

us large sues each year for interest and principal operates to reduce its ability by
just so much to buy goods here, that is, reduces its bnying power.

7ithin the last six months a notable change has occurred in conditions in
areat Britain which has a direct bearing upon our policy.

Solvent foreign borrowers

in good standing, both government and private, are now able to borrow money on long

time in the London market at at /east 1/2 of 1% below the rates of interest that are
being asked for similar loans in the United States, and for short time banking loans
they are able to borrow in London fully 1% or more under our rates.



Which tend to close our markets to loans at this time, when dollars are at a premium

may indeed result in permanent loss of markets by our exporters, for the loans will
Largely go to London.

The existence of the premium on dollars is an almost over..

whelming inducement for foreign governments to borrow here, and so further develop our

export trade.

To illustrate, with francs at 50% depreciation, or, say, at the rats

of 10 francs to the dollar, a French loan of a million dollars in this market


will produce, when the dollars are converted in France into francs, a total of 10
million francs.

with the franc appreciating in value (measured in dollars) the

amount of francs required every nix months to pay the dollar interest on such loans

is not only

constantly being reduced but

should francs appreciate to par by the time

the loan matures only 5 million francs will then be needed to buy the American Exchange

million dollars originally borrowed here.

in the market with which to repay the

nations now suffering

from a serious


discount in their dorestic currencies will there-

by be later relieved of the heavy burden of


depreciated currencies, ehloh must later be repaid

borrowings made now in their own

in an appreciated currency, ahen the

value of the domestic currency in later years is restored.

You will observe, therefore,

that far-sighted finance ministers will naturally seek to borrow as much as possible
in the American market in order that in later years the budget requirements (that is,
tax requirements) to meet the loan will decline in correspondence with the up reciation
in the value of the domestic cUrrency.

Speaking broadly, herein lies the great oppor-

tunity for the development of American export trade, the eapansion of which must from
now on for a period, and possibly to a large extent, be financed upon credit.


borrowings may be made by nations which have no occasion to spend any money whatever
for the purchase of goods.


others Who will use


They will nevertheless dispose of
in purchasing American goods.

the dollars so borrowed


It is frequently claimed that the British loverneent iriposes some re-

striction similar to that diacuseed under (1).

This I understand has never been

the case, except during the ear, and is confirned by the following cables exchanged
with the Bank of England:

"It is being repeatedly asserted here that your Government

has for sure time past influenced or required bankers to stipulate
that proceeds of foreign loans placed in your market be expended

Can you inform re if this statement is wholly

for British goods.

or partly correct or wholly incorrect? Personally believe principle
is bed and would like expression of your views. Strong.*
"Your #74. Firsts Statement is wholly incorrect as regards

last couple of years.

principle is bad.

I entirely agree with your opinion that


Blackett conarne this. Third: This

does not apply to loans which ray be guaranteed by British
Government under trade facilities act for relief of unemployment

but no such loans have been issued to public.

Bank of England."

What happens in London has been generally undarstood by Americans engaged

In trade in the Past and elsewhere, and is the natural development of the extension

of British banking into foreign lands in close association with British mercantile

then applications for loans are made to the

foreign borrowers, it is not =core= that the London banker endeavors to secure
some sort of an understanding that the proceeds will be spent there, as one of the
considerations for the placing of the loans In England.

It is not the result of

government requirement, can hardly be said to be even a custom, but is simply the

result of better cooperation after nany years of experience between that department
of the British business organization which supplies credit and another department
which nanufactures and export goods.


Viewing these complicated subjects of

disordered exchanges (Which are en

impediment to the restoration of trade), of the impaired purchasing power of many

nations teach is likewise an impediment to trade), of the excessive gold reserves
In the United 5tates (which may become an inducement to speculation rather than

development of production and cortexes), as a whole the world problem to-day Is

clearly how to restore conditions to such degree of stability so that international

trade and inter-change of goods and credit will again return to normal.



contribution to this end nay be made by any nation than by ours through the free
extension of credit to sound borrowers

by American investors and bankers.

It will

gradually bring the foreign exchangea of many countries back to a normal and stable

To that end I believe the energies of the American Government and its

citizens should now be directed.





April 20, 1922.

My dear Governor:

I am greatly indebted to you for sending me
your memoranda in relation to foreign loans.


have sent the copies ,which you were good enough to

furnish me to Secretary lellon and Secretary Hoover.
You may be assured that the matter will receive
the most careful consideration.
Very sincerely yours,

Benjamin Strong, Esquire,
Federal Reserve Bank of New York,
New York, N. Y.





Department of Commerce

Office of the Secretary
April 29, 1922.

Hon. Charles E. Hughes
Secretary of State
Washington, D. C.
My dear Mr. Secretary:

I am in receipt of the very able memorandum

prepared by Governor Strong upon the subject of foreign

I do not think anyone disputes Governor Strong's

economic premise that foreign loans made in the American
market will be represented by the ultimate export of goods
or gold to some destination - either to the borrowing
country or otherwise.

It can at once be agreed that in

principle foreign loans are vital in the present situation
of the world and of our commerce.
I am not', however, prepared to accept Governor

Strong's implied conclusion that no standards should be
set up in the placing of foreign loans in the American market.
I believe these standards can be developed in the banking
community itself.

I am convinced that unless they are so

developed Congress will, sooner or later, impose control on
the placing of such obligations, as there are other and larger
considerations than those enumerated by Governor Strong.

It appears to me that the Federal Government has certain




unavoidable political and moral responsibilities toward these
operations and that our bankers have certain internal responsibilities to our commerce.

In the political category it may be stated that credits
from our citizens to foreign governments or municipalities
have a different complexion from either internal credit
operations or even of credits to private persons abroad, in
that there is no method by which failure in payment of such

loans can be prosecuted, except by the diplomatic intervention
of our government.

There rests upon the Federal Government,

whether desired or not, an implication that it will assist
our citizens in relation to such transactions.

To impose

such lines of conduct on defaulting governmental creditors
as will recover to our citizens their due is a path which
has led to infinite complexities in international relations.

It is Perfectly possible to carry an argument against foreign
loans to an extreme, but even a moderate view should certainly
go to the extent of creating some concern in the Federal
Government that the security and form of these loans Should,
at the outset, involve a'fair hope that the Federal Government
will not be required to enter upon intervention.
A further political interest lies in finance which
lends itself directly or indirectly to war or to the maintenance of political and economic instability.

We are morally


and selfishly interested in the economic and political
recovery of all the gorld.

America is practically the

final reservoir of international capital.

Unless this

capital is to be employed for reproductive purposes there is
little hope of economic recovery.

The expenditure of American

capital, whether represented by goods or gold in the maintenance of unbalanced budgets or the support of armies, is destructive use of capital.

It is piling up dangers for the

future of the world and While it may bring temporary values to
the lender of the money, or the exporter'of goods, it makes

no contribution to the increase of economic stability and in
fact contributes directly toward the continuation of instability,

and thus indirectly robs both the lender and the exporter of
goods of the real benefits that would otherwise accrue.
Broadly, the reproductive use of export gold or goods
means an increased standard of living, increased demand for
further goods and. increased social stability, whereas the

unproductive use is the negation of these ends.

The most pertinent fact with regard to Europe today
is that the whole political and economic life is enveloped in
an atmosphere of war and not of peace.

Restrictions on loans

made from the United States to reproductive purposes will at

least give the tendency to render impossible that form of

statesmanship which would maintain such an atmosphere.

In the second category, that of moral responsibilities,
the problem is also much involved and argument can be carried
to extremes, but again some middle ground does exist.


citizens have had but little experience in international investment.

They are not possessed of the information with

regard to the security of many of these offerings Which is
possessed by the Government or such offerings would not be

A serious question arises in my mind as to whether

the Federal Government has the moral right to withhold this
information from its citizens.

For instance, a vast amount of foreign currencies, and

securities in foreign currencies, have been sold to the American
investor, Which have resulted in a national loss of probably upwards of five hundred millions of dollars in the last three years.
It may be contended that it is the duty of the different state
governments to protect their citizens from such frauds, but in
the international field it seems to me improbable that any action
of the state governments would be practical, and if once undertaken under the various investment control laws of the different
states, might lead to a large amount of international complication.

Even in the field of more respectable finance, the loan
history of some of the nations who are borrowing freely in these

markets for the first time could not be familiar to the American
investor or there would be less facility in placing these loans

with other than speculative investors.

Another instance of these moral responsibilities lies
ill loans to countries already indebted to the United States

Government in large sums and who from every apparent prospect

will not be able to meet these obligations to the American


Our Federal authorities must have some responsibility

in not informing our citizens (or the promotors to them) that
these nations will probably have to confess inability to meet
their creditors.

Unless some such action is taken the citizens

from whom such information has been withheld would seem to me to
have the moral right to insist that the Federal Government
should not press its governmental claims to the prejudice of
their investment.

The only justification for allowing loans to proceed to
countries already unable to meet their liabilities, would be th.21

the resources obtained from such loans would be applied to re-

productive purposes Which would increase the assets of such a
borrowing nation in such manner as to strengthen its ability
to meet its obligations to the United States Treasury.


fore, the Federal Government must from this reason alone be at
once interested in the purpose to which such loans are to be

The whole of these problems or moral responsibilities
are perfectly capable of dialectics in ethics to their total
obliteration, but the test of action of the Federal Government in these particulars should at least be the standard that

would be expected of a reputable business man dealing with


his own customers.



The great complaint that has arisen in the West against
the flood of foreign loans is largely concerned over competition
raising interest rates.

Foreign Government loans floated in

this market are offered on terms which yield from

gro to 3;1, per

annum in excess of the amounts which many of our domestic in-

stitutions can prudently pay for such credits, and in a market
Where there is not unlimited capital, must measurably decrease the
ability of our domestic institutions to secure credits.

There can

be no question that the foreign competition has maintdired interest
rates against our domestic industry.

It is, of course, contended

that these loans support our export trade and thru the eaployment
gf our workmen, etc., tend to impel domestic recovery.

But when

we consider that 94% of our activities are domestic, the burden
is against the domestic situation.

It is but partially true to

say that goods exported as a result of foreign credits are an addition to our prodUctivity and employment.

They may quite well

displace goods that are needed in our own domestic development.
For instance, in the present situation of our railways, these
institutions cannot afford to pay in excess of 6% per annum for
credits with which to increase their equipment.

They are, there-

fore, unable to compete with foreign railways offering 2% to 3%
higher interest.

There isno addition to the productive capacity

of the United States when an American railway is unable to secure
such equipment because it cannot compete with a French railway

- 7 -

in offering higher rates of interest.

I am not disposed to state that any restriction should be
applied for these reasons.

I state it in refutation of the

superficial view that "there is nothing in such contentions".
It is undoubtedly bad economics to attach compulsory purlIase of American goods as a condition of loans in our markets,

as the Shipment of goods ultimately follows in any event.


is however a fact that such conditions are applied in foreign
countries, as a matter of practical negotiation both of British
bankers and others, particularly in the following directions:
Establishment of the conditions that specifications
for public works expenditure from money borrowed
shall at least give their contractors and builders
of equipment an equal chance to compete on equal
terms with other foreigners;

Where construction is of public type that will necessitate continuous subsequent purchase of spare parts
and supplies of the country Originating the system,
insistence is strongly made for selling the initial
plant to the borrowing country.

For instance, there is scarcely a China railway loan on
the London market that has not embraced one or both of these

These reservations on loans could Where possible,

be carried out by our bankers as well as others.
Yours faithfully,

Herbert Hoover



May 6, 192.

My dear Mr. Secretary:

Your note of May 5, enclosing a copy of a letter addressed to
you by Secretary Hoover, dated April 29, 1922, has just been received,
and at the earliest opportunity I shall ask the privilege of sending
you a brief comment upon only one or two points raised by the Secretary.
With many of Secretary

and of course you realize, as we


arguments I am

in entire accord,

must, that I would not venture to pass

upon those considerations which are strictly political and which more

directly relate

to the political policies of our government as distinguish-

ed from a strictly economic point of view.
I much appreciate your

courtesy in sending me his

beg to remain,

Yours sincerely,

3enj. Strong,

Honorable Charles F. Eughee,

Secretary of State,

State Department,
Washington, D. C.

letter, and





May .5, 1922,eJ

My dear


With reference to my letter of
April 20, 1922, acknowledging the receipt
of your memoranda in relation to foreign
loans, I beg to enclose herewith,

as of

possible interest, a copy of a letter
dated April 2(.), 1922

from Secretary Hoover,

commenting upon your memorandum.
Sincerely yours,

Benjamin Strong, .E'squire,

Federal Reserve Bank
New York City.

of New York,

Fell it



elir 17-




May 5, 1922.



My dear Governor:

With reference

to my letter of

April 20, 1922, acknowledging the receipt
of your memoranda in relation to foreign
loans, I beg to enclose herewith, as of

possible interest, a copy of
dated April 29,

1922 from

a letter

Secretary Hoover

commenting upon your memorandum.
Sincerely yours,

Benjamin Strong, .4NquIre,
Federal Reserve Bank'
New York City.

of New York,



June 29, 1922.

My dear Governor Strong:

I trust that you will pardon my delay in
acknowledging the receipt of your very interesting letter commenting on Secretary Hoover's

memorandum of April twenty-ninth upon the subject
of foreign loans.

I have sent copies of your

letter to Secretary Mellon and Secretary Hoover,

and I am indebted to you for the statement you
have Made.

With high regard, I am,
Faithfully yours,

Honorable Benjamin Strong,
Federal Reserve Bank of New York,
New York City.


June 9, 1922.
dy dear Mr. Secretary:

May I ask your consideration of the following brief comments in regard
to the memorandum of April 29 ehich Secretary hoover was kind enougt to prepare,

commenting upon that I sent you on the subject of foreign loans.

Re statement

is most impreesivo, and especially so when one considers the extent and variety

of his experience.

In fact, my respect for his viEVIS has Jed me to hesitate fo r

some time before writing you again.
The in entoranduzi which I sent you ,v as purposely confined to the rather

narrow ecenoxic point of view.

Mr. Hoover's memorandum opens the door wide to

the consider tier of the politicel and meral responsibility of the officers of
our government in this important matter.

Hie concepts relate principally to

First, is it wise to permit or encourage our

two aspects of foreign loans.

citizens to Pa ali El leans to those nations now enaed in tasteful military expenditures?

And second, has our government & moral responsibility to restrain its

citizeus from making loans which may turn out to be bad and consequently involve

us in some diplomatic or like Procedure, to assist in their collection in the
event of default?

As to the first, I


most heartily in accord with the principle that

we cannot afford to lead encouragement, and should not give moral aid or comfort
to those governments which are in any way responsible for e4 continuance of the

present unsatisfactory political, social and economic conditions throughout the

My doubt has been !solely as to whether our influence should be exerted

by restriction upon lending to those nations, or ehether some better or wore
effective means could not be devised.

If the only means available is to restrain

our citizens from lending, then I hope our government will employ that means.


Secretary Hughes.



it I have a strsng feeling that the isey to this situation lies in the policy of
this government towards the whole subject of intergovernment debts.

It is a subject shioh Secretary Hoover and I have frequently discussed,

and I shall not burden you in this letter with arguments.
As to the second aspect of the natter, permit me to respectfully eubmit
the followings

If loans by the citizens of one country to a foreign vvernment or to its
citizens are predicated upon the theory that at some time thee° who make the loses

say find it necessary to turn to their government to aid in the collection of sueh
loans in tho event of default, then I vould agree Ott no such loans be permitted.
They sould simply later become an added cause of dispute, dissenticn and inter-

national misunderstanding of the sort that leads to farrare.

According to my

underetaucing of t e hiatcry of interaetional credit transactions, not for a
century or mere has the collection of defaulted loans been the subject of more than
diplomatic representation of the mildest oort, end even then as a. rule only when

resort to the courts of the borrowing nation has resulted in manifest injuetice to
the lenders.

If: governmental regulation of this and all vorts of other slitters,

suet it not be borne in mind that when go vernm en t /5.8eitillEt43 any responsibility that-

ever for assent or dissent in

given transaction, it may turn out that its greatest

responsibility arises through failure to act rather than through affirmative motion.
Im other words, if our go v ertment undertekes to pass ueon the goodness of a loan,

even in a minute degree, does it not inaugurate a system of responsibility to
which there may be no termination except by the assumption of full responsibility?

Shen se conscientious an officer of our government es the Secretary of

Commerce expresses his cencern lest American investors ae loans shich 411 in-

volve losses, it seems indeed en ungrateful attitude to dissent from his sosition.
I hesitate indeed to de se, but my point is that once regulation, eupervieion,

or control is attempted, there is no limit te ohich it my develop and no limit to
the responsibility .hich our tioverneent may ultimately be called upon to assume.


June CC

ay indeed lead to responsibilitiee shich vouId involve us in the very disputee
and dissentions ohich I am eo eager tbet this nation should always sueoesefully

1111 you accept this ez;-ression la evidence of my earnest desire to eon

tribute in any way possible to the elucidation of a matter vhich is of very grave

concern to this country and its citizens, and which of course /suet in the last
analysis be determined by those vhe carry the responsibility.

Two spare copies of this letter are also enclosed in case you feel disposed to transmit thee to becretery Mellon and Secretary Tioover.

Again thanking you for your courtesy in giving a eart of your valeehle
time to considering thie correenondence, and with assurance cif r.y high regard,
believe me,

Respectfully yours,

iionorable Charles C. Hughes,

Secretary of State,

Department of State,
isehington, D. C.

June 9, 1922.
hy deer Mr. Secretary*

May I tisk your oensideration of the followius, brief comments in regard
to the memorandum of April


whioh Secretary Boover les kind encugh to prepare,

cowsrenting upon sthit I sent you on the subject of foreign loans.

fie statement

is most imi;reesivc, and especially co when on acne' dere the extent end variety

of his experience.

In fact, my respect for hie views has led me t hesitete for

some time before oritini; you nein.
The memertuldum ;ditch I sent you was ?urposely confined to the rather

tiarroz wnocie point of view.

Or. Koover,a memorandum °pone the door wide to

the coneider. Lion of the political end moral responsibility of the officers of
our governeent in this ist-ortaet matter.
two aspects of fereien losnu.

}LIBcort relate princically

First, is it wise to ;erelit or enoeurage our

citizens to make loane o thoee untione now engageci in as.stmful military expenditures?

And secced, has our government a moral responsibility to retrain its

citizens from making loene shich may turn out to be bad and oonsequently involve

us in some diplometic or like procedure,


itst in their collection in the

event of default?

As to the first, I as most heartily in accord with the principle that
vs cannot afford to lend encouragement and should not give moral aid or comfort

to thee goverimszitt ehich are in any way responsible for a oontinuance of the
present unsatisfactory 1.,oliticel, social and economic cond!.tions threughout

itly doubt has been solely as to 'whether our influence should be exerted

by restriction upon lending to the nations, or *bother some better or more
ffeotive meane could not be devised.

If the only means available is to restrain

our citizens from lending, then I hoe our government wil3 employ that means.


Secretary Hughes.

June V, 192?.

strong feeling that the key to this situation lies in the polioy of

t I hive

ppvernment toeards the vho/e subject of inter-government debts.

It io e subject /Alia Secretary Hoover and I have frequently discussed,

and I shall not burden you in this letter with arguments.
As to the second &spnt of the matter, permit as to respectfully submit
the following:

If lotne by the citisens or one country to & foreign covernment or to its
citizens are.predicated upon the theory thet at some tittle those who make the loans

may find it necessary to turn to their government to aid in the collection of such

loans in the event of defeult, then I lould agree that no suoh loans be permitted.
They mould sieray later beenme an edded cause of diseete, diesention end international.



tt!.-1 sort thst lends to eerfare.

According to my

Mel-cry of intern7.tiona1 orodit transactions, not for a

century or mere has the collection of defaulted loans been the subject of more than

diplomatic representation of the mildest port, end even then as a rule only ellen

resort to the courts of the borrowiag nation has resulted in Faanifeet injustice to
the lendera.

In governmental regulation of this and an sorts of other matters,

must it. not be borne in mind that when overnment its unies any resocueibility hat-

ever for assent or dissent in e given transaction, it may turn out that its greatest
responsibility arises througts failure to act rether than through affirmative action.
In other words, if our

v rneent undertekes to pass upon the 4odnese of a loan,

even in a minute degree, done it not inaugurate a system of responsibility to
which there may be no termination except by the aseum;Aion of full responsibility?

eo oonscientioue sn officer cf our rvernment as the Secretary of

Commeroe expresees his concern lest Americen investors, mee loans which 4111 in-

volve losees, it seems indeed 'An ungrateful attitude to dissent from his :ositien.

/ hesitate indeed to do so, but my point is that once regulation, supervision,
or control is attempted, there is no limit to which it may develop and no limit to
the reseonsibility which our doverneent may ultimately be called upon to tiBaUTAC.

June 9, 1922.


It say indeed lead tA) reeNnsibilitise shich 'feuld involve us in thi:,se very disutee
sod dissentions which I


oazer that this nation should always successfully


Iii!. you acce,A this enression eta evidence of ay earnest desire to con-

tribute i

ny 461 ,jo at bl e to the elucidation o

setter which is of very .jreve

concern to this country lind its citizens, and which of couree suet in the last
a.nalysis be determined by those


cr.rry the responsibility.

Two c;are copies of this letter are also enclosed in cane you feel diepoeed to transmit tbse to L'A-tcrotery Vence end Stioretlry Hoover.

thanking vett for your courtesy in giving a part of your valuable
time tu oonsid%rtn5 tkia corree9o,adonce, and with assurance of sy high regard,
believe tle,
Ftespectfully yours,

Honorable Charles E. III:ghee,

Secretary of State,

Department of State,
hashinIton, 7'. C.

October 5, 1922.

Dear Mr. Secretary:

Only today have I had opportunity when Mr. Irving T. Bush

called to see me, to gain some idea of the proposal which he has in
mind for an international conference, and to learn something of what
he is seeking to accomplish by that method.
You know bow deeply interested we have all been at the
Reserve Bank in

various proposals of that character, and I hope that

you will give me opportunity to discuss them

with you when I am in

Washington next week.
Commencing on Tuesday we have a conference which will

probably last all of the week, but I shall be there all day Monday

and will take the liberty of calling

your secretary to see whether

you are free to give me an appointment.

With cOrdial

regards, believe me,
Yours sincerely,

Honorable Charles E. Hughes,
Secretary of State,
Washington, D. C.



October 19, 1922.


Dear Mr. 6ecretary:

Since eriting you on the 18th instant in regard to the account of the


Japan, we have received the regular monthly report from

of Statistics and Research which contains the following

their Depertment

significant item:

"On the 18th of August the Government announced the program for

regulation of the ericee of coerodities


The program consists of

1.9 items of which the principal ones may be enumerated as follows: (1) The
reserve held abroad against note issues to be abolished;

(2) Small pa-;.er

currency to be recalled from circulation and replaced by metallic currency."
The other iteme enumerated do not relate to foreign balances.
It ehould. not, be concluded from the statement that withdraeale of
balances which may now ee held in this country by the Japanese Gcverneent and

by Japanese banes has any political significance.

The Janansee currency,

which is principally issued by the Bank of Japan,(and the 67718.11 amount of

fractional currency issued by the Treasury to replace silver, which disweesered
circuletion during the war, is covered to the extent of almoet 100 per cent.

by gold or foreign gold bals.ncee.

It is this very large stoce of ppld which

has been the cause of a oertein amount of inflation and speculation in Jaean,
and really has been the fundamental reason for a certain amount of eolitical and

occial unrest becaure of the high cost o.' living.
I am under the impression that the withdrawal of foreign balances

will not be carried to the point, of imeairing that portion of

October 19, 1922


reserve abroad, which ie really maintained in anticipation of the maturity of
bonds which were sold in the United States and England during the Husso-Japanese

war; but as to that 3.[Icl other matters suggested by the statement above quoted,
I ea writing to the Governor of the Ban of Japan for further information,
which will be conveyed to you later.
Accompanying this letter is a i7emo ranclum relating to Japanese

exchange, Japanese trade balances and the sold movement between this country
and Japan, together with appropriate comments thereon.

I beg to remain,
Yours respectfully,

jenj. Strong,

Honorable Ch.irlee E. Hughes,

Secretary of State,
Wa.shington, D. C.



The accompanying figures indicate in a general way
That the adverse trade balance of Japan with the rest of
the world has been progressively reduced from
it has been extinguished.

January of

this year until

The figures for August and September are not

yet available.

That coincident with the elimination of the adverse trade


the discount on Japanese currency and the corresponding premium

on dollars has been reduced from the high point of 5.04 to the September

rate of 3.49.
That coincident with the general reduction of the adverse


there has been a fairly continuous excess of exports to the

United States over imports from the United States.
It curiously exhibits one


which may be only coincidence,

namely, that the traditional timidity of the Japanese in financial matters

led them to refrain from using their American dollar balances at a time when
they were really required to meet adverse trade balances, and now that the
trade balance has been corrected and the cause of their timidity has been
removed, they have decided to withdraw some of the dollar balances which
they hold in this country.

This surmise could hardly be verified without considerable
investigation, however, and should be aaepted with some reservation.

Japan's Foreign Trade in 1922





Excess of
Exports over

Excess of
Imports over



Currently from "Monthly Return of the Foreign Trade of The Empiie
of Japan," Department of Finance.


Gold - Im orts and exports between United States and Japan - 1922
No direct or indirect imports or exports during the period from
January to August, 1922.

Japanese Foreign Rates of Exchange - (Yokohama)
t0.4983 = 1 yen




% above or below par

Trade of the United States with Japan

Total Merchandise






/ 22,406,076






/ 19,556,986















October 1.8, 1922.


Dear IV,r. secretary:

Eir.ce last I wrote you in regard to the Japanese ocount, we
have succeeded in effecting a rea.djustmant of the terms of the account
in a, ma.nner which I think will be more satisfactory both to the Bank of

Ja-.?.n as well as to this institution, the principal change consisting
in the

investment of a larger proportion of the balance of funds which

they maintain with us.

ks this will be handled in such a way as to produoe. a larger
return in interest to Um Bank of Japan and k somewhat larger income
from 3011iftiSE10136 to this bail., it i8 not unlikely that the amount of

the balance waintained with us will be increased; although 1.0seibly not

to its former proportions.

Definite advie,..e o

be sent to you whenever it occurs.

I be to remain,
Respectfully yours,

Ilenj. Strong,

Honorable Charles k;. Hughes,

Secretary of State,
Washington, D. C.



such change will

October 20, 1922.

Dear Mr. Secretary:

Referring once more to

the proposals which have

been outlined to

you by Mr. Irving T.

Bush, President of the Chamber of Commerce of

New York, I have had


the State of

further conversation with him since seeing you in

Washington, and now take the liberty of adding the following comments to what
I then stated.

His proposal for a non-political unofficial conference of business
men to be held in this country is directed especially

towards the


ment of American public opinion in regard to the various matters, principally
economic, which so pressingly require discussion and solution.

Theracan be

no possible objection that I can see to the taking of any steps which will
create a sound public opinion in the United States upon




I have been obliged to state to Mr. Bush, rather reluctantly I confess, that
I believe his method is e mistaken one and will do more harm than good.
Possibly this view can best be
of the country it will better


serve his

by stating that in

the present


purpose to have a conference confined

to American business men than it would be to have a mixed conference which
would include representatives of foreign governments.

There will be

differences of opinion expressed by those coming from abroad, there is likeiy

to be a

certain amount of resentment arising from attempting to shape

American public opinion

by the introduction of the views of


parties from abroad, and at the present juncture, I am reluctantly compelled
to express the view that such a meeting would do more harm than good.


October 20, 1922

This is substantially what I believe I said I would .0.rite you

after seeing Mr. Bush again.

With assurance of my respect, believe me,
Sincerely yours,

Honorable Charles E. Hughes,
Secretary of State,
Rashington, D. C.



October 21, 1922.

My dear Governor:
I have received your letter of the eighteenth,

with regard to the Japanese account, and am glad
to have the information which you give.
Very sincerely yours,

Honorable Benjamin Strong,
Federal Reserve Bank of New York.



October 21, 1922.

My clear Governor:

Your letter of October nineteenth, with res-

pect to the account of the Bank of Japan, has been
received, and I am much obliged to you for this

Sincerely yours,

Honorable Benjamin ';.Arong,

Federal Reserve Bank of New York,
New York, N. Y.


October 21, 1922.

My dear Governor:

I have received your letter of October
twentieth, and thank you for letting me know of
your interview with Mr. Bush and of your views
on the project which he has in mind.
Very sincerely yours,

Honorable Benjamin Strong,
Federal Reserve Bank of New York.

October 25, 1922.

Dear Mr. Secretary:

When Vr. Irving T. Bush last called to see me in regard to the
conference pinn which he had proposed, he showed me a galley proof of an

article which was to ppear in the Hearst news,arers, a. typewritten copy


of whir.h I believe he bad already sent to you.
This appeared I believe in all of the Hearst newspapers on


October 22, and I an enclosing those of the Washington Times, the New York
ATferican and the Herald Examiner of Chicago.

r'ossiblt this may convey a little further insight into the
progran than tp7eared from anything either Mr. Bush or I may have already

said to you.

I be to remain,
Yours respectfully,

Honorable Charlec E. Hughes,

Scretary of Statd,
Washington, D. C.

en c.



October 26, 1922.

My dear Governor:

I have received your letter of October
twenty-fifth, enclosing Mr. Bush's article.

which I am glad to have.
Thanking you, I am,

Very sincerely yours,

Honorable Benjamin Strong,
Federal Reserve Bank of New York,
New York, N. Y.


November 7, 1922.

My dear Governor:

On returning to Washington I find your letter
of October thirtieth, with respect to the gold and
foreign exchange policy of the Japanese Government.
Thanking you for this information,



Very sincerely yours,

Honorable Benjamin Strong,

Federal Reserve Bank of New York,
New York, N. Y.



November 7, 1922.

My dear Governor:

On returning to Washington I find your letter
of October thirtieth, with respect to the gold and
foreign exchange policy of the Japanese Government.
Thanking you for this information, I am,
Very sincerely yours,

Honorable Benjamin Strong,
Federal Reserve Bank of New York,
New York, N. Y.





Dear Mr. Secretary:

Since writing you on Octoeer 12 in regard to the gold and foreign
exchange policy of the Japanese Government, we now have a further report dated
October 5 1,.th1ch contains the following:

"With reference to the rerovfel o the ban on the export
of gold, which has been the subject of much discussion and
speculation of' late in coenection with the rteulation of comuodity
prices as mentioned in the last report, theC.'*overnmeat made an
announcement of its views, on the 1'.ith of Seetembec to the effects
(1) that, it was not expedient to lift embargo at this eoment when

bueinese conditions, et hoe sntt abroad, are still uneettled, but
that the Government will be ready to take the step as soon as the
situation shall ecore refs visb:te and there shall be no fear of
sudden disturbances to our business and finance as the result of
such en action; (2) that, while the ban on the ex-port or geld
remains in force, it will be the policy of the Governeent in
future to Bell as much freely ee possible it fund held abroed,

so Nta not to put our import trade to too much dieadvantag,e as the
********** Our foreign
result of the unfavorable exchange.
trade has continued favorable since last July. According to the
preliminary reports, eeports exceelet: imeorte thin menth to the
amount of 41F,000,000, due in the main to a. general decrease in

imports and to heavy sales of raw silk for experte. As a result,
or exchange, which had remained at .1'47 3/4 for cable
transfers Since early :Way, improved by 1/4 to tA8 on the 7th."

our New

The above would seem to confirm the comeents which accompanied my

last letter.
I beg to remain,
Eespectfully yours,

Benj. Strong,

Honorable Charles

Secretary of State,
Weshington, D. C.
BS. 1171



December 19, 1922.


Dear Mr. Secretary:
Bearing further upon what I have recentl! writl-en you
in regard

the policy of the Japanese Government respecting its

foreign balances, I take the liberty of enclosing to yo. e copy

of a confidential communication which I have

recently received

the Governor of the Thank of Japan.
With assurance of my esteem, believe me,


/ours very truly,

Beq. Strong,


Honorable Charles E. Hughes,

Department of State,
'qashindton, D. C.




December 21, 1922.


My dear Governor Strong:
I have received your letter of December nineteenth and am glad to have the information you give

with respect to the policy of the Japanese Government
with regard to its foreign balances.
With high regard, I am,
Very sincerely yours,

Honorable Benjamin Strong,

Governor, Federal Reserve Bank of New York,
New York City.




4, - -

ocri; aol ztemloI1 cdi ovad al bri. Mt bat d4atio3

9dI 0 %AA

c( td o:69q51i7 ':41W

6 '1 at blzeor iitl
A74/4 dli




November 9, 1923.

ny dear Mr. Strong:
Pardon me for t


'delay in replying to your

letter of October 7, 1923, which was handed to me
by Mr. Harrison.

I have read your letter with great interest,
and as I understand from Harrison that you expect
to be in Washington shortly, I shall look forward to
an opportunity of discussing the matter with you upon
your arrival.

I was so glad to hear that you had completed your
cure and that you wculd be back with us.
dith kind. regards,

Sincerely yours,

Mr. Benjamin Strong,

Colorado Springs,


February 14, 1824.

Dear Yr. Secretary:

Having recently had occasion to make some inquiry as to the
economic dependence of Japan upon the United States, it occurs to 7Te

that the report which has just reached my hands may he of some interest
to the Department in connection with Japanese relations generally.

I am, therefore, taking the liberty of handing you a copy
on the regular office form, which you may be interested in glancing
ever. If not, doubtless You would care to

ass it on to your assist-

ant who has charge of these matters.

You will, I am sure, not hesitate to advise me if reports of

this character are really of no interest, so that I shall not bother
you by sending them.

With assurance of my esteem, I beg to remain,


Benj. Strong,

Honorable,Charies Eir-NwIree,

Secretary of State,
State Departmert,

Waal-,ington, D. C.

en c.




In reply refer to
PL - 611.94/20

March 3, 1924.

Mr. Benjamin 6trong,
Governor, kederal Reserve _Bank of Lew York,

hew York City.
My dear Mr. strong:
I have to acknowledge your letter of i'ebruary 14,

in which you were good enough to enclose a copy of a

report regarding the economic situation of Japan and
at the same time to express my thanks for your courtesy

in placing this information at the disposal of the



The report in question is highly informative and
has been read with interest; and if it is convenient
for you to supply similar reports from time to time, the
,Jpartment will be glad to receive copies of them.
I am, my dear Mr. Jtrong,


June 2, 1924.

1 .1


My dear Governor Strong:
I have received yotr letter of May twenty-

ninth and thank yed for sending me a copy of

your letterAo Mr. Mellon, which I have read
with deep interest.

I should not care to make

any comment until I have had a chance to discuss
the questions with Mr. Mellon and others.
With high regard, I am,
Very sincerely yours,

Honorable Benjamin Strong,
1718 H Street, N. W.,
Washington, D. C.

Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102