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of our credit after the war is over it will all come back. They
do a large business on the Iacific Coast, all the way from
Vancouver to Chilian ports.


:Prom there I went to 1-orc7an,

ComPany for mail and had a little chat aith Grenfell.

Teased him a bit in regard to the censorship, which resulted in
Lontagu Norman quoting to me almost the exact language contaii_
in Boissevain's letter about Dutch exchange.

I told him it was

all vary amusing, and he agreed that we could :mutually enjoy
the joke.

Grenfell says he is confident that Lord Cunliffe and
have laid uhe basis for a most importtnt development, and that
he is aeliniited at the attitude which the 2eserve Bank System
displays towards the Bank of -24nr-lLna and is erually Pleased tha

Lord Cunliffe vie's the oosnibility of this arrangement with
such satisfaction.

He urged me to go in t-nd see him from time

t6 time at the Bank of England, before I sail.
From there went to the London Cou_ty Lnd ":festlinster
Bank for lunch with 1.1r. Leaf and his directors.

host of the

Board arpeared to be there, but I do not recall all of the

r. fidvard Brown of Bra n Brothers



Lord Cavendish, Sir

211fred Dent, Mr. Henry C. Hambro, Henry Cochran Sturgess, Mr.
There was always, hm,ever, a very large volume of bills dra

There was a finance bills,
Lrthur Hill were bank which would technically pass as good. deal
bank on those whom I remember.

of discussion resTrded as matterse during as good, and in many cases be
Hill is
were of Mexican being
ually lunch, as

Chair n of one of the Mexican 2ailways, and Mr. Sturgess of
These bills were not discriminated again
than trade bills.
another. by Notflig, however, that had any bearing Mood English
the Bank of England if they bore one uno-

Hambro, was exercised both by the had quite
Lfter lunch
Discrimination Mr. Drown, Dr. Leaf L.:n(1 Imar,:el andathe Ban

Mr. Brown thought probably
long discussion in regard to bills. amoantof bills accented by any one
Engl'nd in res,,ect
;0,250,000,000 sterling was the average amount ofenabledheld in tell
acceptor in the market and oxpe-Jience bills them to

Hr. Hambro regarded as
the London market prior todrawn war. nur roses notthought aboutsound.
bills were being the for
350,000,0)0 sterling
if bills


nd Possibly 400,000,000, ,:overnients or ban-ke
by South Lmerican of which about

largest there
,22q,000,0n0 were Cerman bank agency bills.
ntici atin o_ bills -n(I'loans here.The Thou it class was r.
of bi_Lls, in amount,


ore trade bills accepted both by merchants,

merchant bankers and acceptance houses, and the joint stock banks.

possibility of that busi-ess having been overdone a


the war, and thet ,,he mar et (id not discriainate against them
and the Ban:_ of Engl,n0 discounte, them.

' Ihe:7 h ve


rep rded, generally speaking, the Allerican finance bill, accepted

by a clearing bank, as one of fhe
sarLrised to hear


-)rii-:lest in

I was

liaiabro, who is undoubtedly well Posted, say

that there were not over 40,, of the norlacl volume of bills now

in this market, which would mean possibly $700,000,000 to
$800,000,0n0 as

a normal volume of one and one half to

two billion dollars.

lmost every ba ker here

.iuh whom

I have discussed the nuestion of bills, says that we will never
h ve



bill larket in


-e discrilain'te

rins, finance

bills or bills on__:n in the -1011.1 of finance bills.

'hey sP-)ke

of the large volume of bills in this ..larket dra\-n by financial

institutions _nd
an:2-Cling on ,Le



for -£5,000

:ill to i_CieLte the ourcnose foi

These would generally be rerarded


_icy,_ it is

drurn for exchcnge

purposes miless current reort of trLnsactions. of which she
market ha( knowledge, led them to conclude that they were drawn
for some other specific Purnose such as in anticipation of issues
of securities etc.

e Lase had soae discussion of the operation

of the Clearing House, of thick the following brief account (sent
to ; r. Jay today,) gives the eseential features:
In recent yeLrs the practice of giving irliaediLte credit

on checks has been growing among the London Joint Stock =-2z.:s as

a result of more severe competition-the items being credited


immediately to their customers and charged on their books as
part of their available cash.

One must bear in


that three days is the maximum distance here, measured by
transit time both ways, and that the uotcl of "country" checks
cleared through the bankers clearing house in London was
£1,389,000,000 sterling in 1913, and 1:1,370,090,000 sterling in
1914, rn average of, say, only 146, 000,000 sterling Per business

allowiat three days. I hive no doubt from what they tell

me that the PorcentL,ge of this carried as cash is still but a
small part of the total.

he gentlemen seemed to agree that

the prcetice was cn unsound one, and should be curbed.

In fact,

they were rather amused _nen I referred to it, as it. had been

discussed considerably among uhemselves as being one of the
unfortunate results of keen competition.

Allowance.should case,

of course, be made for the fact that there are other clearing

centers besides London where similar practices may develop, and
there is undoubtedly some float created by giving ildiediate
credit for checks payable in the ::etropolitan District for

which the clearing house settlement is deferred for one day only.
the bankers call attentio, to the fet. that distances here


are so much shorter than ours that this Problem is not as serious
as it would be with us.
I7rom the IondoA County 7- 'Jestminster Bank I stcn eC in


moment to see Sir Christopher Nugent at the Union Discount


I asked him what the P,scik of T;nprnd 4ept on the

He said, no different, generally, than that which the

market kept on bills.

?hey could tell,as a rule, either by

inoniry or by rates quoted by the bill brokers, whether any



particular name was a

earing in

the market regarded as legitimate.

he market in e=7cess of what

This he described as the

resistance of the market which was essential L:nd easily

The bank had, however, reruired the private accept-

infr houses,

hich publish no stc_tement, to give them each year

the amount of their carital and wealth but Cid not ask then for
the wnount of their accepta nces outst:nding.

He thought the

bank should do so and let it be known that they ::ere reouiring
th,-t information.

ne]-e cs sJ,ae aritation zit

she Present

time there, requiring private bankers to disclose the amount of
their canital and the amount of their accertfnce co:nmitments.
Said he

,ot think that large purchases of sterling bills

were just now being made in Lon( on by American banks.

He did

think that sterling bills ourchased in the United States, maybe,
carried in 1-rger volume in portfolio here than was the case
some months ago.

Had soile discussion with him about the

possibility of discount co:manies in Hew York.

He, however,

inclined to the view that it would be a good thing for both
countries if 'English ba_Ls and financial institutions had

agencies in Hew York, and we had agencies over here.
whole, I think he is right.

From his office sto pea In to

see Lord Fairfax but he was out.
Ln(i. missed Ambassador ..fe

On the

7hen to the Yierican Embassy

had a short visit with Captain

Symington and then returned to the hotel.
Straight fEi.ed. to turn urn but 7.:r.

called in to see me



to say tlY-L he was leaving the next
Federal Reserve Bank of St. Louis

for Iaris to discuss another French cledit

ith the



Jednesday afternoon dictation:

March 22nd, 1916.

Since dictating the foregoing, yesterday afternoon, I have
today lunched ,5.-th directors of the London County & -.1estminster Bank
Ltd, and ha a lit le further talk with
Leaf and so e of Lis
associates at that bank in regard to the ouestion of float.

They tell me that in recent years the practice of
immediate credit, on checks has been growing among the London Joint
Stock Banks as'i-esult of more severe competition, -- the items being
credited immediately to their customers and ch - ;ed on their books
as a part of their available cash.
One m u bear in mind, however,
that three days is the maximum distance easured by transit time both
ways, and that the total of "country checks cleared through the
bankers clewing house in London was Z1,389,000Tterling in 1913, and
E1,370,000 sterling in 1914, .214.,-26.h.s4-a-11-ow-i-4F-;:aw an average of, say,605

£46,000,000 sterling per business day,
three days t
I have no doubt from what
they tell me that the percentageicarried as cash isibut a small part
of the/ total.

These gentlemen seemed to agree that the Practice was an
unsound one, and should be curbed.
In fact,they were rather amused
when I referred to it, as 4.8444.1-ester it had been discussed considerably


among thenselves7as being one of the unfortunate results of keen

fillowance should of course, .11164 be made for the fact that
there are other clearing centres besides London where similar practices
may develop and there is undoubtedly some float created by giving
immediate credit for checks payable in the Metropolitan District for
which the clearing house settlement is deferred for one dry only.
the bankers call attention to the fact that distances here are so much
shorter that this Problem is not as serious as it would be with us.


which was of course teribly mismanaged, in the end General
had his way in regard to Salonika and it was nron his


definite positive insistence that the Salonika landing was made
and it had no

judgment was abso-

been proved that J

Sir Henry, as in the case of all others

lutely correct.

with whom I live talked here, seemed to be very much better
rosted and to have a better and more friendly feeling in rerfard

to _merican ooinion in resrect to the war on account of having
visited Lmerica during the war period.
Had di ::a .er .ith Captain Symington at the Savoy, and

then went to the TTirPodrome.

Thursda7, I.:arch 23rd:

Stoned at ' :organ, Grcnfell °- Company for mLii and

from there went right to the 13:11k of ingland in response to a

note from Grenfell the nighL before.


Saw Lord

Demity Gove.lor of -,he Bank of irtT-1Lnd,

nu L2. HoAtaF_.0 korman, discussing again ouite fully the -Ilan

%/e had outlined in former conversations.

It is very

,Prent that all three of these gentlemen are most friendly
to the su,-Testion.

Te discussed it in every aspect for about

one hour, and finally agreed to spend so_e time on Friday the
24th, in rrerarLig L- memoranda.' of c)nversations for submission,

o _1-


to cur resedtive b:


icuity develoring from the conversations is the rather

co:Allex one of dealing

LA the prober time.

ith gold, ,lch necessitates cqi under-


cost of

o fineness, abrasion,

necessi-L;y1of shiPpin

l of which, however,



out by discus-

he conclusion of the interview I had c Private talk
Gorman reprding .he ::etherlands exchcnge situation.

he position that it is none of my business to dis-

y way interest myself iii the blockade mater.

rested bet em the British,

ernient,1 mattel

nited States {;overn_ionts.



rn .Lierican citizen or

I CIA believe, and
ban': owed

ens of ::eLher1L:.nds or to a Ifetherlrnds hank, that

ess would be paid blockade or no blockade, and if

f paying it could not be found it would naturally

ttin- aside the -old, and if the .cold could be mode

cn issue of notes or other credit operations by

etherlands, that was of no conseruence to us.


ts the soundness of that position, but on the other

t the engaPement between the Overseas Trust and

overnment is of e. character which _mist be resected

as in letter, and an arrangement for ear-marking

ay I had suggested would be .n evasion of the

ent, and result inaa serious state of a. fairs beteen
and Holland.

Tie :natter was _ow actively under

and representatives of the Overseas Trust were in

le he did ,tot say so,


I gathered that the situation

I told him, of course, thf,'t the ouestion

of the blockade was not a ouestion that concerned
point of fact, I
Federal Reserve Bank of St. Louis

regarded the blockade as suite


Sir Felix said the market would not discriminate as they k
three lots that appeared to be finance bills, concerninir which
Ho sail, tliat
generally the character of the transactions.

while the suPply of bills was now very much restricted, as

could see from these purchases, it was still possible to get
Bills of their character are selling at about



Talked with him about the domestic exchanges he

and he said it was unfortunately a growing practice to give
immediL.te credit for country items.

It was a matter of

arrangep_nt .ith each deositor, but of course, only those
of excellent standing enjoyed the privilege.

I asked him

the banks carried the checks on their statement.
some of them carried them as cash.

until 12 or 15 years ago when he stomed the

He said

His had done so
own bank
ractice believing

it unsound, and now they included it in their item of "Zoney at
short notice".

They alays co_Isidered, however, even when

checks received on deposit were drawn on their own branches,
that giving immediate credit was simply a form of advances on

their customer, ao they would not consider the check was good
until it had been presented at the branch to ascertain if the
check in all respects was regular.
dressed at the hotel and stopped at I:rs. Page's where I had a
nice talk with :1rs. Page, met L:r. Loughlin and his wife, and

also had a short talk with Mr. Page.

Then returned to the

hotel and 2gent about an hour with StrLight and Perkins, discussing their plans.

Ldvised them to see Mr. Stillman before.

proceeding very fax here.-- thou:,:h his advice would be of Brea



ut out of my balliwack.

He reference to a letter in


sales of German securities through Dutch bankers was

iteral quotation from a letter I had just received


Company and I joked him a bit about the

, reading to him an axtr,ct from the letter

ood laugh.


Mr. Yorman told me that he understood

re already receiving gold on deposit at the Federal

ank for account of the Bank of 2Tetherlands, and that

some hitch or difficulty in rep: rd to charges, our
having been 1/20th of 1.) Per annum per month.

felt (mite sure that no deposits had yet been

ut he was enually Positive that they had.

Fro _i tnere

ent to the London ,'- South- estern bank

on at one o'clock, meeting

1.1r. Hamblin, Sir J.

Flannery, Lord ClauCe 7amilton, an

of the bank.

They were all

so.le other

Lost friendly but it

Plainly a ,parent that, as at every other lunch of

cter I hate attended, all were most interested in
-politics and watching anxiously to see if things ii:ht

e direction of Possible participation by the United

the war situation.

_Liter luncheon snent something

ur -;ith Sir Felix Schuster and

ent through,

ith him,

over £1,000,000 sterling which his bank had just
I was greatly interested to observe the very small
of the acceptances by the Private accenting houses,

em being accentLnces of the Joint Stock Dcm:s, Land

'-nd continental banks.


There were only two or






I h








Triday, Larch 24th:

,Dent the morning dictating mail


diary, and


aring a rough outline of memorandum for Lord Cunliffe.


at Lars an, Grenfell ", Company for mail and received a cable

r. Jay ti -..ich referred

o the discussion about charges, of

7hich Mr. Norman had already advised Lie.

Vent to the Bank

of England at twelve o'clock and met the Deputy Governor
and learned that Mr. Norman was engaged.

4e went

all over the memorandum carefully, and later on Mr. Non-can

came in and he read it over.

They both thought that the

matter would renuire careful attention and consideration as
to detail, but after all the agreement was not of Particular
importance--the most important thing


had a long discussion about technical methods of handling
various matters, particularly the establishment of an agreed
price for finexxxx gold

uhe Deputy Governor felt would

be u. very useful arrange .:nt eli,ninatinp. much confusion and

difficulty in managing good accounting.
paid, by law,


The Bank of England

75:09dper ounce for gold which if Presented to

the Mint by the o_ner would produce in soverign 77:10d, the
difference being what the market generally is

to nllow

the Bank of England for giving the oiner credit instea( of
waiting the return from the Hint which is a rather slow Process.

In the course of the conversation it developed quite clearly

that the war situation had led the Bank of EngLnd to abandon
the practice
Federal Reserve Bank of St. Louis

of allowing no interest on any balance, and
as a

a matter of fact they were now allowing interest on certrin

special accounts which I gathered were a portion of ,he funds
left by the Joint Stock Banks and possibly some others.


was agreed that in some of these matters exrerience would
disclose, where our understanding might be inadeouate to
cover situations that might arise, we would have uo :fleet them

by agreement at the time.

It was understood that Lord

Cunliffe would look the me_orandum over and we would take it
up again on Monday if he had opportunity to examine it.
Had a brief chat with i.iontagu Norman about the Nether-

lands gold situation.

He intimated that it was a rather

serious matter just now.

The were discussing it with the

representatives of the retherlands people.

I assume the

policy is along the lines of our last discussion.

I told him

that, of course, that was entirely out of my line and a matter
for the respective governments to deal with, but on the [-old
deposited in New York, we must of course receive the *matt
de posits if we could agree upon terms.

He said they were

taking steps to make sure that all my cables and comuiunica-

tions on the subject were gathered uogether and examined,end
I judged that he also referred to the o_fice--w-hich may have

been goi_g by wireless so far as I am aware.

The whole matter

is really a joke in a sense, for it is perfectly apparent that
all our communications on the subject are cL'refully examined
before discussing them with me.

Lunched with the Court- -

all of the directors treating me most cordially, and anparently




fixed rule.

:very bill bore .ich obligations
one oi

One of these may be the obligati n


broker or discount house an0 in tke form of a

er or liability agreement accomoanying each bunch

which the obligor undertakes to :ur.,ish en(orse-


a_is is simPly to avoid the mechanical

ndorsing bills.


also advances on

rities, charging a higher than bank rate.


nt relates to the practices followed in normal

se h ve hecessarily been considerably todified

eriod of the war.

Samples of some of

he forms

nished me.
there, 1.:r. Padgett and I went down to the Bureau

ls are handled and collected but I did not have

ss bills at great length, as the man 14. charge

lain the operation of the bank end of the

Luch of it was a renitition of what Er. Martin

ined--the only important fact brought out,

m the exiaanation by Hr. Holland was that checks

d Irish banks were not collected directly through

heck department of the London Clearing House.

England with certain specific exceptions, such as

e DisLursing Officer of the Government, only
the clearings.if time Per:aits, I e::.-)ect to get

ement of this matter before leaving.


om there went directly to the 'jar Office and got



Cameron :Forbes to kee-.7) our a.)oi-ltnlent yith Lord. Tatchener.

Sent about L.n hour
"co ig

him Lnei ha6 a very interestili

o the hotel ad Sir Charles Ar,('is o

Shanghai Dan-zinc- Cor Jo-ration called.

Hunsicker sto pea in.

Dii,eCt in

he cv ning


he 7onr

Later Colonel

.he rest of Lhe eveiiiiig (ictating.

Interview with Lord Kitchener
London, :lurch 24, 1916

On Friday, 'larch 24, 1916, on the invitation of Lord


Kitchener, Mr. Strong, of the Federal Reserve Bank, 'Jew llork,

and :Ir. Forbes, Receiver of the Brazil Railway Company, presented
themselves at the ;jar Department and were shortly after received.

Lord Kitchener was cordial in his greeting and throughout the interview, which lasted nearly an hour, showed no evidence of the
reticence he is reputed to observe, talking steadily, fluently
and somewhat intensely.

The topic of the interview was mainly

the relations between the United States and Great Britain, the

attitude of the United States toward the war, and the effect that
action by the United States in regard to the atrocities, particularly terminating diplomatic relations with Germany, would have

in terminating the war.

Ue discuosed no military aspects of

the war and only incidentally did Lord Kitchener give any idea as
to the probable duration of the war, always referring to the war
as likely to be of long duration, speakinj always of years, and
on one occasion speaking of the coning of peace as "say three
years hence", except in the case the Unite,k States ahould take

action, which he felt would shorten the period of the war.
In preparini, these notes no offort has been made to cuoto

the exact language used but to Live a general sketch of the
purport of the conversation as recalled afterward.

Speaking of a visit to Australia, Lord Kitchener remarked
that it was extremely lucky ho had made that trip at that time,
because he had started the movement which had led to a sort of
compulsion, as he called it, which had served an elatremely useful


purpose in training Australia for preparedness in this war, besides
which he had brought about the creation of a military school modelled

upon West Point.

7e said there was no school in England where


revolution in Germany; that there was within Germany now a great
dissatisfaction, a strong feeling against the domination of the
military caste, but the Germane had no tangible method of knowing
that their policies and methods were abhorrent to other countries.
The effect of England's condemnation of then was offset by the
fact that England was considered their hereditary enemy.


they felt had a grievance and Russia also was a natural enemy.
The United States was a great powerful country, with one hundred

million people and unlimited resources, whose standing and opinion
could have a controlling weight on the people of Germany.

If the

United States were to come out and declare themselves as no longer
friendly he believed it would stimulate the unrest in Germany to
a point that would set the Gernan people to thinking whether they

were really right; whether they hadn't been misled; whether after
all their rulers hadn't led then into violating the fundamental
principles of justice and right.

military caste was so complete that most information was withheld
and only some fact of supreme importance, like breaking off relations with the United States, which could not be suppressed, would
reach then in convincing form.

Consciousness that they had been

misled he felt would be the controlling factor in leading them to
bring about that internal revolution which he felt necessary to
end the war and he expressed it as his opinion that this action
by the United States would serve to be the last straw and bring
about an early termination of the war.

within which

He didn't give a period

this would cone about but left us with the impression

He took occasion to e-Tress great admiration for the United

Lir. Strong suggested that our people hadn't yet

become entirely assimilated he replied "Oh, what a country it will
be when that time comes".

He said that peace would not be signed in Berlin.

He thought

that when peace cane the armies would still be in the trenches and
probably not very far from their present locations.

Lord ntchener was very interesting and very positive about the
unfortunate effects of a premature peace or an unsatisfactory or
indeterminate conclusion to the war.

Unless an end were made to

this military spirit and control of Germany he felt peace would only
lust at the outside seven years, at which tine Germany would start

again, and it was reasonable to suppose that they would be more

successful in their diplomacy a second time and succeed in catching the Allies disunited.

He expressed the difficulty of ob-

taining and maintaining a satisfactory concert by the Allies. That
this had been done in the present
he expressed confidence in

instance was most fortunate and

the power of the Allies to continue

these relations but it was an intensely difficult thing to do and

it would hardly do to count on it in the future.

If the war

dragged on until the Allies got fearfully tired of it, they might

disagree as to the necessity for exacting terms that would assure
a durable peace and some of the Allies might assent to letting up.
He gave the impression that the influence of the United States


having broken off relations with Germany and sided sLuarely for
the establishment and maintenance of a durable
peace would be of


incalculable advantage toward bringing about a condition that would
do away with this menace hanging over the world.


If this menace

were still left the United States would be one of the countries concerned.

The Germans had shown wonderful ingenuity and great per-

sistence in worming their way into the heart of the financial
systems of neighboring countries, like some cancer or disease or
worm; they found their way close to the heart's blood of the commercial life and got a strangle hold, as it were, upon the intimate
financial workings of the country.

lie in,tanced Italy, which

even now hadn't declared war on Germany because of the German
strength in their financial institutions.

He spoke of Russia,

where their influence, he said, in lines of finance was paramount,
and even England and prance, he said, were honeycombed with German

financiers and German influence in their financial structure.


said that after, the war they would he clever enough to see that

the United States was the place where the greatest amount of money
could be found and that was the place where they would lay their
plans for the strongest intervention.

He told us of the extraordinarily subtle way in which the
Germans h-a obtained control of the manufacture of explosives.
He himself had been out of the country for thirty or forty years;
his service had been all foreign; he didn't know until the war
broke out home conditions.

He was astonished, when he called the

manufacturers of explosives in, to find that they were all Germans;
many of them couldn't even speak 7nglish, and although the com-

panies had made contracts and agreements for delivery, they were
constantly falling short.

The whole thing had to be nurgea of

German influence before they could begin with efficiency.

It took

time to train men up tj handle this business and do it properly.
The Germans had even taken the factory for the 7anufacture of
benzoine bodily to Holland; there was none manufactured in the
United Kingdon, and they were compelled to take necessary measures
This hel been accompli shed and :ngland is not only

to return it.

supplying herself but also her Allies with this necessary ingredient
for e-,plosives.

strong mentioned the growth of a certain irritL,Yon
respecting the attitude of the United States.

Lord Kitchener in-

terrupted to disclaim the existence of such an irritation.

He said

it was rather a misunderstanding or lack of appreciation of the
policy of our Government.

Hr. Strong then said that if it was

not irritation it might become irritation as the result of the
aggressive and rather boastful attitude of the American press
regarding our financial stren:th on the one hand and on the otier
hand of the propoganda now being undertaken by the British press
to promote the continuance of the war commercially after the
military war had ended.

Strong said that nothing would so

surely establish a basis for future wars as attempts to interfere
between the commercial relations of nations by unnatural means,
such for instance as protective tariffs, preferential treatment
of Allies, etc.

Lord Kitchener said that this movement was not

directed toward the United States but against Germany, to which "Ir.

Strong replied that he understood that to be the case now but that
possibly if

the United States hel:, aloof until peace was :liscussed


Strong went on to explain the situation as to American public
opinion in regard to these matters.

The United States had never

had a foreign policy in the sense that European nations had.


sole interests of the United States in foreign matters consisted
(first) of a certain respect for Washington's advice in regard to
foreign entanglements which might involve them in the European
political system and (second) their respect for the Monroe

Doctrine, both of which were designed to protect the integrity
of the United States, and (third) the more recently developeC, and

still but little understood policy of the open door in China as
developed by Hr. Hay.

That the same situation prevailed as to

the financial relations of the United States with the rest of the


The development of our resources recuired the use of all

the funds we could raise at hone and in the cheaper money markets
of Europe.

Vie had been borrower;, abroad and not lenders, con-

sec_uently hrd not actluainted ourselves with financial conditions

abroad or with the credit of 3overnments or institutions.

In other

words, the people of the United States were not conscious of any
international responsibilities and had not regarded thenselves as
of any importance in international affairs.

llow, suddenly, a war

broke out which involved the whole of Europe and it developed that

the United States was of very reat, possibly of deciding importance, both politically and financially, on account of their
large population and wealth.

It could not be expected that one

hundred million people would, in the short period of this war,
abandon the ideas so deeply planted in their minds in rei-ard to

foreign affairs and suddenly reverse their former view of what the


country's position should be.

Recognizing, however, the import-

ance of our position, as many people now do, it would be deplor-


able if misunderstandings arose in regard to commercial and
financial matters which would make the United States and great
3ritain bitter commercial rivals at the conclusion of the war.
The solution, Lord Kitcaener felt, was an alliance between the

great nglish speaking peoples, namely, the United States and

iir. iorbes expressed the hope that some

cone to some such understanding.

we would

Hr. Strong said that in his

opinion the tradition of the people of the United States against
what ;lashington cautioned then as being entangling alliances would

prevent the approval by the United States Senate of any treaty of
offensive and defensive military alliance; that such an agreement
could not be e_tpected to meet with the approval of the United

States in the reasonably near future.

Lord Kitchener, without

defining the exact nature of the agreement, e-pressed the hope that
England and the United States would enter into some rel_tion that

would result in bringing all English speaking people together in
a determination to prevent recurrence o: Germany's aggression and
make it impossible for the German military spirit ever again to

become formidable in influencing world development or bringing
about general war.

Lord Kitchener spoke with great earnestness in regard to
America's hope that it might act as mediator.

He said that if

the Allies won the w r, and he expressed his confidence in their
determination and power to do so, the meC.intion of the United

would not tie sought or welcomed; there would be no need of


a mediator.

It was only if the war went against then that any

mediation could be considered.

By "going against then" it is

presumed he includes some such condition as a stale-nate, in which
case mediation mii7ht be pro'itable.

Hr. 2orbes put the direct question as to what steps were
Strong suggested that per-

necessary to bring about peace.

haps the .:flies might announce the terms upon which they would

accept peace and let Gera any cone to them when they saw the hope-

lessness of obtaining anything better.
announcement of terms was a :3i0

Lord ritchener said the

of weakness.

It seened to be

somewhat like throwing up the sponge; the fact of terms being an-

nounced would put heart into the other side and stiffen their determination.

He said that is what England was hoping Germany

would do, but they would not consider doing it.

L:ote: apropos of

this, it is interesting to observe that the British Prime Hininter

already, at the beginning of the war, has done something of this
This indicated exactly what England is _lighting for and


what it proposes to get, including a very general statement of

Lord ritchener emphasized the e::tremely improved position that

the United States would have in influencing the situation after the
war if she had ranged herself squarely on the side of the Lilies by
breaking off terms with Germany in case the Allies, as he expects,
are victorious, an expectation which would be much more likely to
be realized were the United States to take this step.
Lord ritchenr'r, as we were saying goodby, spoke very bitterly

of the German atrocities, their duplicity and their thoroughly


underhand manner of conducting the war.

He characterized their

policy as foul play of the most dastardly wort; in comparison he

IP said

the Dervishes, the Boers and the Turks, with all of whom

he had conducted warfare, were gentlemen; that
with their code of honor.

fought each

He told us that the Turkish soldiers

refused to do the dirty underhand things ordered by their German

He said that after fighting with any of the others

ho was clad to be friends with them; that he would shake the hand
of his enemy, and made special mention in a most complimentary
manner of General Smuts, who is commanding a campaign under his
orders now and with whom ho had fought over an important part of
a continent, but he said that he never warted to shake hands with
a German foe.
Tie-sorb'. Strong and Forbes came away with a feeling that

Lord Zitchener had brought about the interview with the particular
purpose of convincing representative Americans and having them
bring back to their own people their conviction that no permanent
peace in --]urope could be expected except as a result of some

effective arrangement between Great Britain and the United States;
that now was the time to prepare the foundLtions for this; that
public opinion in England would welcome any such movement, and it
would be not effective in assurinF- a world peace.

Great Britain

will undoubtedly have similar close relations with her present

Mies but their nearness to Germany and the heavy burden of debt
which they must carry after the war will bring it about that the
assistance and the cordial cooperation of the United States will


be necessary to give the arrangement the greatest degree of

exceedingly well in-lorned.

Frederick asked

After 4 and his wife had left, Sir

le to join him in his library, and he told

e a

good many interesting incidents connected with the cricis here in


1914; particularly in regard to the issue of currency notes.
There is no doubt but that these Enrlishman are great fellows for

criticizing each other, but I constantly
Friday, March

this is simply talk and when it comes to real business they generally get it done.

Sir Frederick's son who was an aviator has

been interned in Holland since early in the war and Mrs. Jackson

expressed deep gratitude to LLIbassador Van Dyke :for courtesies and

assistance to her son and friends of his who were with him.

Saturday, March 25th:

Met Lord Reading at his house at 10:30 by apnointflent and

spent about one hour discussing the whole war situation over here;
particularly the nossibiliti s of various arrangements in connection with a treaty of neace which would result in a fairly nerma.nent situation.

He seems to be of the same oninion that a number

of other really substantial

men here hold, namely, that the safest

restrictions on Germany and the bellicose nations will be sn
arrangement between Englund and the United States.

Lord Reading

has shown me the greatest cordiality although I know that he is
He expressed a strong desire to come

an exceedingly busy man.

to the United States again.

He concurs with -le absolutely

that the noeole of the United States cannot be expected to fight
for such an abstract Proposition as democracy (whatever that means)
That it will take strong German provocations to even cause a
severance of diplomatic relations, the Lusitania case now having
He believe, however, that it would bring the

lost its snap.

war to a much speedier conclusion if we severed diplomatic
relations -;ith Germany, and that it would lead to a formation of

English public opinion that would put the peace terms very much

in the hands of hgland and the United States.

:i.ere sto ped in at I.:organ, Grenfell

Company for

mail and had a chat with Grenfell about the domestic bill business.
He scys that the Bank of England has very little contact with that
business nor does his own firm.

drawn by certain special trades

Domestic bills are largely
and not at all by others.


shipbuilding, lumber, woolens, building, and certain of the textile

The bills are drawn and accepted generally by the larger

dealers and not by the retail trade.

the present time the ship -

building and the shipping business is so proserous and so largely
co.Iducted on a cLsh basis that the bills have absolutely disrnpeared
from the market.

Before the war the construction of big liners

was very largely financed by with bills dia\.n by the building
company on the ship,)in

company which were regularly sold through


for continuing the war commercially, after the military war is


over, against Germany, does not find favor.

Everywhere I hear

d,iscussiazi of the difficulties expected with the labor ouestion

on which I think there arehensions are
s Aewhat unfounded.


re now incurring some difficulties

working men who are badly led, and follow somewhat the
principles of our colored. labor.

much to live on.

Feel that they need just so

They do their work largely by

iece work,

and after a man has made a certain amount --all that the:7 feel

y need to live on, they are not inclined to woi


ving that the surplus profit accruing from their efforts

unjust additional contribution to capital in wich they

Those around the table impressed me rather as

alists, but it was an exceedingly pleasant evening.


the bills brokers and discount houses, and by them distributed

throughout the market.

Bills drawn by H

& M

on say the P w 0, the wrhite Star, Cunard or Ocean Steamship Cos.,

were regarded as first class in every way and would be taken by
the Bank of England without any hesitation.

At times there

were many millions of these bills in the market.

They were

generally liquidated when the ship was completed and debentures
or other securities issued.

Occasionally, they would be renewed

by new bills beLig issued to provide f,i_nds to meet the maturing

On the way back to the hotel left my card for Sir.

George Paish who was not in the city.

Lunched with Captain

Symington, a Russian Haval Lttache, and an Adiliral of the Russian

Navy who was in London on admiralty busines.

Played souash

with Captain Symington after lunch ana returned to the hotel.

Had a call from Shiverick, and at eight o'clock went with Willard
Straight and Perkins to Mr. and Mrs. iilliam ':aldorf Astor's
home for dinner to meet some of the members cc.: The "Round Table".

Astors were very cordial, gave us a simple war dinner, but the
discussion at the table was exceedingly interesting.


present; A. J. Balfour, Carr, Brand, and Hitchins, all of the
'2ounf Table", and a 1:r. Weismann, a Hebrew in the government
service who has just Perfected a process for te° lucing high

explosives at the whiskey distilleries; practically all of
which have been taken over by the Governuent.

This man is of

great learning and a prominent Zionist promoter, and he appeared
to me an unfathomable Jew.

ar. Balfour and


-_:arch 261h, 1916:

2ac breakfst with Ambassador Lrid. hrs

o'clock Enu spent the morning there until 11:30.

Page at nine

:cage is exceedingly keen to discuss many maters of great
interest to me and to him as well, and he made clear to me,with-

out equivocation, what his feeling was in regard to the war and
our own attitude towards it.

the object of

I exnlai,,ed to him couuletely

visit here, and the program so far carried out

which he seemed to think was a splendid thing.

I also ex-lai_led

the Dutch exchange difficulties and the nosition I had taken at
the Ban: of 2:diglLnd, as well as the seriousness of the °resent
nosition bet,:cen England
Federal Reserve Bank of St. Louis

nd 7olland.

He seeled to find no

to the statement of my attitude but he ri(

s:-,y that

to the Question of finance of

British nation there is nothing

so close to Lord Cunliffes heart as getting the right kind of a
He thoroughly understands the

relationship established.

1)osition I have taken in regard. co the illegality of the Dutch

blockade and agrees that the matter should be dealt with between
Holl-nd and


ngland in the first insuance, and that we can do

nothing else but handle our
our many conversations.

matter, as suggested in

I pointed out to him that an agreement

between England and Holla nd in re7ard to transactions between

the United States and Germany might involve a violation of our

rights---that it was a matter I had very little information
about but that certainly vie could not enter into any agreement,

or beco_de a party in any way which would actually, or by
indication, commit us to a campaign of blockade or embargo which
we regarded as illegal.

Mau I was only interested in the

banking end of it, and that if they were going to apply a sieve
to this commerce, the indebtedness resulting between the two
countries on such transactions that did Pass through the "sieve"
must be settled.

If their sieve was so fine that it arrested

transactions that our Government considered proper, then that

was a matter for the resnective ,overnlents t) deal with, and
with which I had no concern.

.:Te have ench,nged a good deal of

good natured banter about the censorship, but I am satisfied that
every scrap of communication on this subject is in his hands,
and has been thoroughly studied.

I was glad to ascertai


there were Lao real black marks against one of my close associates
Lathousth he is of course looked unon with soi:.e doubt.

note of uhe interesting matter told me about a member
resiCe_.t's C-binet).

(make a



Before I le_t a 1:r. Booth called.


has an L-.1,ortant -oosition under Lloyd George in the
He is a membe:!r of the firm of shipping peo )1e

of tht nalae, and I gathered from so..le remarks that were each: nged

that he


He vas very much interested, and asked me many ouestions about %Ix
our new banking system.

2Leturned to

reading before going to dinner

i_th Captain Symington, Lieutenant

rjlekemyer and :Ir. Shiverick at Ciros.

.,he hotel and did some

:ionday, ?arch 27th:

Caller at ::organ, Grenfell '? Company for mail and

another cable from the office about Dutch exchange.
I'leceived too late however to get a reply off today or to catch

my earlier cable.

Company went to

7rom ]:organ, Grenfell

Baring Brothers, to call upon Mr. Farrar who was not in the
city, and not feeling very well, but I saw Lora :ievelstoke

and had a nice chat with him for fifteen or twenty minutes.
Pound him, like mosl Englishmen just now, very much interested
in imerican politics, all of course with just one object in

Repeated Lly invoTiable story on -,he su ject of

:imerican public °Pinion,

;ith which he was polite enough to

agree but subsec;uent discussion rather indicated that he, like

the others, are rather ske-Aical of our good faith an
testations of Food faith.



id not say this directly, but

I thought his manner implied it a bit.

prom thel-e called on

Er. Bell and found that he had an accumulation of forms regarding domestic collections which would require too much
time for ex-Planation this morning so I agreed to stop tomorrow.

Met Lord Fairfax in the office and said goodbye to him.
called at ;.Tr.


Skinner's (U S Consul) office who asked what I

thought about the taking

of securities from Dutch boats.


went over it in some detail and I e::plained to him the views

that I had expressed to some English bankers

et al)
Federal Reserve Bank of St. Louis


Montagu Norman

r..nd thought that he was inclined, to agree with me that


r,re o :L sufficient e ::cellence to be classed as floater, -- a

floater bei_ig considered the very best collateral for day to


day or seven day money, as they are alys available at the
Bank of England even in preference to any other na2er.


said due of the chief features of the domestic bill exchange
from an economic sense is it insures.the
of bills by merchants.


prompt payment

The liutle , :Ten here, that is the

retail trade, do not e::pect very much.

The accences were

more in the larger businesses-between manufacturers, wholesf22ers and generally the large dealers in the wholesale lines.

The time varied considerably but rarely more than three months.
Bills drawn to cover ship construction were sometimes given one
or two renewals but they were, nevertheless, available at the
banks and 'Amy generally regarded as very good when the
acceptor was high grace.

From -here sto .e6 in to see Sir Felix Schuster to
say good bye, and learned that he was at the Treasury.


i meCiLtely to Captain Hall's ol'fice at the _admiralty and had
ruite a chat %:ith him.

He says very little but I gathered that

he was onite .guzzled by this latest outbreak on the part of
the Germans in sinking the "Sussex".

It seemed posA.bly to

be insPired by Germany to avoid the rigors and hazards of

another winters campaign, and simply sowed a disposition to
spread ruin broadcast in order to force discussion of peace.

He felt absolutely convinced that they would not sink an
American Line boat.

He told me that I:iarshall's story of

the "Sussex" disaster, as published, was absolutely correct.

he nao just talKed with Marshall and there was absolutely trio

doubt of the "Sussex" having been torpedoed as they had taken
head of a torredo out of the hold.

That this wcs ecually

lac of the "Taoantia" in which were found fragments of a
German torpedo.

(Grenfell told me confidentially this morning

that it had been established that when the sailors were leaving
the "Englishman", recently sunk, and t4ey were getting into
the boats and dropping over the side of the ship, that the
ulen on the German boat which wank her opened up their machine

guns on Lhe men goin

overboard and killed many of them, and

he thought, one American).


I agreed to lunc'il

ith Captain

Thursday, sto ping at his office to nick him up.
Hall told me that it had been definitely established

that 117 lives were lost from the Sussex -- probably no Anericans

although Miss Baldwin was lying in Dover very dangerously
injured and

,rocker was at Dieppe rrobably fa. tally injured

9',cull crushed.

From there sto ped over L't -Ghe __:_erican Line

in their

one' sailed

--They were all in danger of being sunk.


i ii uut= me tnat they were in f' bit of a 7.)anic over the situa-


:Lter doing s,c)me shopping at the drurr store, I came


the deform Club

guests present.

1::any of them were nerchallts from the city,

but some were bankers whom I already knew including Sir Charles
Addis, Sir Christopher _Nugent and hr. Brandt.

A 'ong them vies

one gentleman whose name I fbiled to get and who is a director
in the Dank of England.

After dil_ne Sir Robert made a few

remarks Quite com7ailentary in ref7,r0 to the Federol Reserve
S7 stem, and as,:ed if I would er)lain it, the organization and
the oPerations.

I made a brief discriPtion of the defects of

our old situation, what was aimed to be accom-: ished by
the new s:)-stem, explaining the organization and functions of

the reserve banks etc.
and after

They all seemed very much interested

I was through asked a great many ouestions which I


credit on country checks except the custoler x.-Ts a discount

covering the oerioC of time reouired for collection in each


The tile .1lowed is not o ly su ficient to cover
the collection cost but any interest loss involved as
The sa.:ie cn


)1-.ctice in Irel nd althouFh I do not under-

st _nd th:t the banks there have

The balks

rigid a=e0,:lent.

throuEnont the Irovinces ,nd
Llso cive


throughout t,l


te creClit in mL.n;j instances, rathourh they

Bu. they tell rie that

invL,riably a deduction of interest.

in a very larr::e nufAber of ihstances the bans in t e iTovinces
I am i_aclined to

s_ill receive °hoc .s for deferred credit.


uhe oinion of this, genera-lj, was t'art More checks

were deferred -han were riven iJAedicte

IA the city

.11o.on iL,e(1 te crecit is j_ven vo





sles, but deferred credit is



-f-Lle in Scot]

Irish bf, - :-ss oh r," e, is invf_riably

chec - on t,oc


2_.t Scotch

the de ositor


is either in form of f

tion from the amount credited, or a deductio
from the interest account.



ecuivL,lent of

a lition a collection c-ILrL-e

of c:lecs

for, say, ten days

Lloyd's bank has a rule, which

these gentlemen believed Prevailed in some form in most of the

big banks, by which all checks
treated as holdout items.


i',5,000 or over were

When the deJDoitr

ii _es his

de-nosit every clay, the checks are divided into two
those t]li 7:o th-fouyh ul




r_-.2own or ::Letropolitan clearings in one

t ose tht go throuh the Country clearings in another.

Thej are entered se,)ayately in a ledger-the bal_nces Ere carefully watched.

These country collections ,re deducted from

the interest balance and the balance is scrutinized everyday
to ascertain whether uncollected iteLis are being drawn against.

Ilfter experience with each account they Ere able to determine

to what extent they must require the customer to maintain a
minimum balance free of interest to protect the bank against
uncollected items.

I as_ed them how many checks they sent to

the Clearing House, and what amount likely was credited before
returns are received.

He tells me that they send about 40,000

to 50,000 checks to the Clearing House every day and pay about
an e,ual mommit number, and that the ban;: has outstanding un-


collected items averaging about £1,0u0,000 sterling although
this may sometimes reach as high as Z2,0-0,0m0 sterling.


keep a separate account of all uncollected checks which they
call "deferred cash" just as they call deposits which are not

available to depositors until returns are received "deferred

This "deferred cash" item is similar to our "due

from banks" and is generally included in the item "Cash in
Vault--due from Bank of England, and at short notice".


item varies somewhat in language on the different bank statements
but it is generally considered as due at short notice.


Bell stLted that this matter of giving ia ediate credit for
:hecks, eliminating in some cases collection charges formally

imuosed, etc., etc., had not been very well handled by the Bank

Illage English banks.

Formelay it was in good shape but,

without mentioning any names, in recent years one ,Irominent bank

had been guilty of debauching the business by extending
rrivileges to customers in order to get business away from other

He referred to Holden.

He and others have stated to

me that the Scotch system was the best.

They never '[_ve

immediate credit except the check is rea-ly discounted, and they
always im:ese charges on country checks.

The ban'ns in London,

generally, hEve an arrangeLint with the Scotch banks for mutual
exchange of ite, s _or which charges are made either directly
or by interest deductions.

It would have taken much more 'uime

than I had at my disiosai just then to work out all the detail
of t _is business.

"here are innumersble excertions to general

rules but the above gives some oicture of how checks

/..E) handled.

One met:.od of shortening time and saving labor is the

direct interchange of items between branches of the clearing

Tor insL nee, if Lloyd's London receiv-s from its

br,nch in naddersfield a check drawn on

branch of the London

at Leeds, -- this check would be sent by the
:one (Y-ice to the lead Of:ico at the Lo:Zon Clec.ri :ig House and

would be received by the London City
a ::ondny.
Leeds ::ondL,y

The 70i D1

1Lnd of London say on

laC1 /ICJ bz_JIT: would send. it to

Lnd by Tuesday ni-ht or :edneday morning

would receive advice that it was good, or, ad ice that it was
not rood.

In Thursdays clearings this item would a,rear in

ile settlement, and the seutlonent would be effected .):7 a
Federal Reserve Bank of St. Louis

goin5- through the Dank of ilagland.

On the other


public opinion, and if the country were ,o become involved
in a war with Germany it could only be in response to a public


opinion which the President would largely create by his own
policy in dealing with Germany.

I was again, as always,

impressed. .:ith the judical and fair attitude displayed by

Lord Bryce in discussing these matters.

He asked me very

frankly in regard to the nuestion, now very much discussed
over here, whether this GovernJent has showed too little
energy in Placing the cause of the Allies before the American

public, particularly in view of the activity of the German

I told him that, in my opinion, anything in the

nature of a ororoganda by 2/1F,,,nd in the United States would

be o fensive in 4,merica--Particularly if it emanated either
from the British Ildbassy or any official source in America.

That the Lmerican public was tired of nropoganda, had refused

the German propoganda and thLt that had had a cosiderDble
iniluence in its com:lete failure.

He said he thought that

was so, and asked me how I thought it would be possible to
convey to the Lnerican people the real import of the war
and what it ,,eant to the world.

I t,ld him that I had thought

c rood deal about it since I came over here, anC, felt that

there was only one way to do it so that it would a ,peal to

the Lmerican peole in the right way, and that was to take the
American news-raper correspondents in this country into their

confidence and tell them the facts and let the news originate
in its customary way.

The Afierican newspaper correspondent

was -oroud of establisinp relations with men of iL'ortance
from who:d reliable news could be had.

They wo7ac-,_ -,)ass the

ne;,s through h,InCis that -,TAew ho.: to deal with it froill a

journalistic point o1 view for Lhe



what Lnerican neu'oaer readers needed was not iredigested
material, or as Lord -3r7-ce eazoressed it "vie '. :s about news"

End would form uheir on views, and if

but "they

the ne. ::s was accurate and of_icial in its s,nrce it would

_nd not as oro-ooganda anC be of

cJ.le th-fou:h as ne..

= :uch

the others agreed that the censorship

4-renter value.

on the news had been too severe in E,,gland, an( Lord Bryce

very heartily agreed

.ith the views I e:::presse

means of conveying facts



A° Alle/' ican newc--oers.


Oiscused senator _oot's sl)eech at sale length.


They agreed


fit it was nqt:acr c:_rtisan

arrc.i-mie.rb of

I e:_)reseC c,e Cisryoroval

admin.istration but very ably dole.
of the

hole idea of CD J,ucting uhe citmai;--n for elrctio-a of

2)resident on


it w:s cerLi 1.;

such issues as
fact till -t

-_]uro-oe:-.n war, Lathou-h

,ost iml)ortnt political

insues in L'_e United States today, were

r and

econoaic issues heretofore occupying first
1 ce in
jects and

--)rogr' ms had been submerged by these t-o sub-

the agitation of them.

Any one who desired a

republican president, for instance, might well ex-I:rocs she



conducte d _In these issues

gave a great advantage to the existing President as he could

steal the thunder of the republic,ns, and in a matter of this

really mEhe public opinion, =Ire than on almost any
other issue.

I repeated the statement which I had fre-

,uestly made in regard to the lack of under'tanding at home
of foreign affairs, and how the American peo,-le did not

realize their own olitical and financial importante in the
worlds affairs today.

iTor had they been educated to believe

that any responsibility rested upon them in that respect.

This wa, of course, not so true along the Atlantic coast
but it was true to a considerab e extent in the mid(le West.
California was affected by the Jap question, and the Southyest by the Llexican question, which would likewise distract

public attention from Euronean affairs.

Lord Bryce said

that he could see no way by which the president could now
avoid difficulty with Germany since the sinking of the

L.nd particularly the "Sussex".

both felt very strongly that that
committed in this :.hole war.

He _lad Lady Bryce

was one of the

orst crimes

After luncheon the discussion

drifted around to the .uestit'a of peace, how it could be

brought about, and what influence the United States would

We had a long discussio

of the antagonisms which

were gradually developing as result of the agressiveness of t -.

American press in exploiting the idea that we were going to
steal the worlds business from The billigerent nations, and
the idea that after the war was over measures must be taken
to monopolize co:mherce, and to cover -ost ground by the war.

Lord Bryce told me that so far as the plans being iiimussed
in the newspapers, they were simply directed against Germany
I expressed the view that if we avoided trouble with Germany
and kept out of the war they would inevitably be directed to
some extent against us.

He w s not altogether inclined to

agree to that -- possibly through politeness, but on the other

h-nd he said that he thought the whole war was a mistake
and that if it bore fruit we would all pay bitterly for it.
He asked me what my own vie ,s were on this subject, and I

repeated the statement made to Sir Robert Balfour, at dinner,
that while our newspapers and some business men might preseTA
this matter as a fair program of expansion at home, the fact

was that the business we were now getting at home had come to
us unsolicited, unsought, and was really an inevitable conseruent of the war over w'qich no party exercised the slightes-,

The .orld had to be fed and clothed.

The currents

Of commerce and banking were being changed and we were benefitting.

When the war was over the matters would rea6ust

themselves again.

If we were able to keep some of the

business it would stay there.

If not, it would go to the

competitor best able to get and keep it.

To illustrate the

point I described the discussion in regard to the bill

market, and also expressed the view that the economic problem
was high taxes, high interest rates, and low labor costs.

countries-versus, low taxes, low interest rates,


I asked Lord Bryce to cosider

hether they had really studied

the domestic situation in regard to labor.

Take for instance a

bank like the London City & Midland, which is today employing
2800 women to do the work of 1650 male clerks gone to the front
If those men were willing to come back and work in the bank

again, and they were all on full pay, the survivors would be in
competition with the women now employed.
shire Cotton Hills.

Likewise in the Lanca-

If Germany restored her cot-,on industry,cnd

the Rusibian and Polish cotton industries were restored, would not

the Lancashire operatives, returning to operate these mills in

Lancashire be in competition with the German, Russian and Polish
operators returning to operate their mills

Would Jot there be

an overproduction of cotton, tem-oorarily at least, and some idle-

ness in Lancashire:

So, in Cornwall, where mining companies are

pressed to the limit now to produce coal for France, Great Britian

as the fleets.

When the Belgian and French mines were

again opened to the world, and shipping released from transport
service to carry coal from America, would not the returning
laborers, now in the army, find a sur-olus of labor in Cornwall?

He said that he had not thought of it in that way--that it might
be so, and if it was the economic problem was probably as I had

I expressed a view that the process of readjustment,

before an enduring neace could be established, would be; First,
a financial and industrial peace, the United States to use its
surplus credit throughout the world to restore the damage caused

by the war; Second, efforts to lower taxes abroad by reducing

ar-lament, and third, but Jost gradual, the readjustment of

prices of goods as a result of the equalization of credit


There was no difference of opinion ex Pressed as to

its being of

aramount importance of avoiding friction beteen

England and the United States in matters of finance and commerce
The discussion of peace was along the line of the possible
position of role of the United States when the time came to
make peace.

Lord Bryce diffidently expressed, not only as his

view but as that entertained by many more, that the position of
the United States as a belligerent would very much simplify the
situation, strengthen England's hand, and enable agreements to


be entered into which would make efforts for permannecy successful.

I said that I was not sure that it was necessary that we

should be a belligerent although I recognized that the influence
on public opinion, brought about by a participation by the United
States nild serve to eliorten the war, would be considerable, but

that on the, whole I thoughtthe most unfortunate situation that
we soul- occupy would be that of ,3 mediator.

Te could not hone

to sit on the throne and dispense justice without being more or
less unpopular with everybody, and furthermore it was hard to
see how, if we occupied that position, the weir lIt of our influ-

nce could be permanently directed towards insuring peace.

Personally I would rather see the negotiations conducted in such
a way that England, France and the United States would be working
in partnership.

He heartily agreed with that and said that he

thought the South American Republics should be brought in and

was hopeful they could be.

I said I thought that would

strengthen public opinion at home, instead of our taking an
active part in support of a peace plan.

As I was leaving he

asked me to step out in the hall for a few moments, and then
asked me very earnestly, f_nd with some emotion, if I thought

public opinion in the United States would support a union of
England, France,and Possibly other allies, in an effort to
enter into some pretty binding peace undertakings at the conclusion: of the war.

I told him that I thought the best minds

of our country, such men as Taft, Root, Elliott, Lodge, Hadley,
et al, could be depended upon to support it and that, generally,


public ()Anion in the United States would be inclined to favor
ollr taking a large ,art in arrangements for insuring permanent

On the other hand, if that should take the form of a

treaty containing anything in the nature of an alliance, particularly for the pur-:)ose of defence or offence, it would be

,:lost difficult to get ratification by the Senate, (unless of

e had become a belligeren.C.

On the otherhand, if the

whole %.orld was to enter into engagement for insuring peace,

and it should not take the form of a treaty of this character,
I felt that there was a very good chance that public opinion
would support it.

He asked if I thought the Senate could be

expected to ratify any arrangement would place some obligation
upon the country to insure peace.

I told him th t while the

Senate was doubtful, I thought the sentiment in the colu.try was

so strong to keep out of the

and avoid heavy armaments, still

they would rally to supiort so obvious and humane a Peace

Just as I was leaving he assurer' me very earnestly,

and with some emotion, that he did not think any Plan for the
imposing of peace would be worth a "rap" unless the United
States was a party to it, and he clearly desired me to understand that serious men here felt that the situation was very
much in our hands.

No one could have been more cordial then he, and I
left him with a stronger feeling than ever that he is our best
friend over here.

Chandler Anderson called at the hotel about 5:30

and told me that he had cameleted the settlement of the meat
cases, the only one now unsettled being in the hands of someone else, and I inferred that it was the Sulzberger case.


expected the agreement to be signed in a few days, just as soon
as they could be engrossed.

He was about to keep an appoint-

m_nt with Lord leading who had asked him to 0411, and he asked
me if I could suggest why Lord Reading wanted to see him.


told him that, judging from my experience here, it was owing to

the great interest and even anxiety prevailing over here in
regard to conditions in Lmerica politically.

That they were

allowing no o portunity to pass for sounding Americans as to
Am,rican feeling at home.

I asked Anderson if he thought the

United States could be brought into a situation at the conclusion
of the war destined to insure a permanent peace.


thought it would be very difficult to get a treaty ratified by

the Senate if it contained any provision for the lice of force.

In fact ,

it was difficult to get any treaty ratified by the
timidity, etc.


He thought

possibly a treaty involving, not the use of force but the
complete withdrawal of all our resources, financial, etc., with
any governilent breaking faith with a concert of powers could

possibly be put through the Senate, but the difficulty would be
to find means of determining what co,2.stituted breaking faith,

and whether it had actually transpired or not.

I personally

have felt right along, as I told Lord Bryce, that the United
States .:sight favor an arrangement, to which all the Powers are

bound, looking toward the insurance of peace, if it were t
up on the basis of peace understanding say under the auspices
of the Hague Tribunal or something of that sort.

The diffi-

culty at present lies in the lack of the kind of leadership in
these matters that would crystallize public sentiment so that
the Senate would feel the pressure.

Later on, Ca2tain Symington and Mr. Shiverick called.
Shortly before eight o'clock, Mr. Grenfell called for
me to dine with Montagu Norman.

Vie spent the entire e- ening,

until after eleven o'clock, discussing the revision of my
memorandum upon relations with the Bank of England.


slight changes were made by la.. Norman, all but one being

satisfactory, and this was changed to a satisfactory form.
Lord Cunliffe being detained out of tonal by the storm, there

may be only a short time for further discussion with him but I

am assured by to his heart, and they feel quite confident of the
close both Norman and Grenfell that the matter is very
arrangement being Put through in an entirely satisfactory

Our discussio:_ throughout the evening was rrincipally i

regard to the general plan of an arrangement between the two

institutions, and which we all agreed should include the Bano

Cfe France in order to make the control of the exchanges comca

and which without the Banoue de France would be more difficul
and a clause had been added to the memorandum to cover that

I e.-)lained that while in Paris I had -not felt, for

various reasons, willing to develop the matter with Monsieur

Pallain in quite the detail that had been done here, but it

would certainly be necessary to take it up again, and to probably make another trip for the puroose.

They all regard

Pallain here as being a little difficult to deal with, particu
larly in the matter of gold.
in regard to this case.


have to be don

all bills here, coming from the East

are drawn at 90 days but there are 3 days grace so that usanc
is really 93 days.

If we carrot buy a bill drawn at 90 days

but which is actually paid at 93 days, the bills available to

us will be much restricted inas:alch as the 90 day bill is tur

over immediately upon arrival and it has 92 days to run. and

volume would have largely pased into the hands of brokers, an
discount houses and never reach our hands.

possible methods of dealing with this matter:

We discussed fou

1....To get a ruling that a bill drL.:n at 90 days, plus grace,
comrlied with the Tlederal 2,eserve Act.

This looks a little

difficult to me.

2...Have the Federal Reserve Act amended.

3....Have an Act of Parliament passed eliminating grace.


they stated was possible but would occasion considerable opposition and derangement of trade custom.

4....Have the Bank of England buy and carry the bills for the
two cl-ys and then turn them over to us.

On the whole, the best plan will probably be to get the
Federal Reselve Act amended.

If the Publicity entaile( by this

course makes it impossible, the fourth :'lan would probably have
Federal Reserve to be Louis
Bank of St. employed,

although there are some very awkward features


by nersonal visits.

The necessity for making no ainotincement

of tentative understanding to be put into operation,after the
war has ended, is thoroughly understood by everyone.


fear that there will be some newspaper speaulations about my
trip after I leave.

No discussio. took place in regard to the question of
gold prices.

That is simply a question of mathmetics

can be worked out by experts.

In conection with the handling of gold it will be
necessary to make a little study of the question of quality.
I learn that from time to time the Bank of England received
gold, in some cases Scandinavia and occasionally from Germany,
w-lich is termed "brittle".

In other words, it does not work

properly in the minting.

I have explained that I am under

the impression that the United States Mint has a regular system
of charges for treating gold .:T_ich varies from our standard in

uality, and wLich would affect the net value realized for coin
tre:ted with on a bu-lion basis.

It may be necessary in

dealing with this subject to have an arrangement to handle

bars as far as possible in the adjustment between the two

77ednesdcy, Li:arch 29th:

Called at Morgan, Grenfell
Jay's latest letter.

Compan; and receivec,

Had a short chat with Grenfell.


there went direct to 11±. Martin- Holland who gave me quite a

collection of data and napers regarding the London Clearing

:re then went to the Clearing House r,.nd met the Chief

Inspector who took me through the building while the clearings
were in operation.

Again it is necessary to slightly nodify the

statements made by others

who annarently were not informed in

detail of the operation.

Town clearings go through just as

formerly described.

Metropolitan clearings go through when

presented prior to four o'clock, being settled Promptly at five.

to the Clearing House are in too great

volume for a ::etropolitan branch to examine before settling hours,
they neverthelecs !Jake settlement "under Protest" in which case

they, in effect, give notice that items so received and settled

irotest may be returned the next day.

Country clearings


close at 10:30, the effect of that being that only checks received
by the banks in the early morning mail are cleared the same day.
These country checks are distributed in the Country Check Depart ment to the various banks or branches on which they are drawn.
They are then sent by the bank to which they are ')resented, to

the various branches in the country.

If the checks are received

on a :=onday, the return from the country will be received, of


course, not later than .iednesday, and on

ednesday's settlement

the debit or credit represented by these checks is included in
the total on the settlement sheet of the bank clearing these items

and forms a part of the total which is settled by transfer check
drawn on or nayable by the Dank of


Bank of England


only clears items which it receives on deposit, and sends to the
Clearing Ilouse.Items drawn on the Bank of England do not io

through the Clearing House but are denosited directly with the Bank
of England by the bank which receives them on denosit, as they are
all, of course, after accounts with the Bank of England.


Chief Inspector told me that in ordinary ttaes they handled about
one million checks per day all told.
in London.

This includes bills domiciled

L11 bi is so domiciled are cleared provided the7 can

the Clearing :Muse so as to go through for nresentation and


If they cannot be cleared in title for protest, they are

presented direct.

Bills domiciled in the country so not go through

the Clearing House as opnortnnity to protest would be lost.


operations of the Clearing House, they told me, would not be nossible without the use of nmerican adding machines.

One very nec-

essary arrangement is invariably follovied;- -every check book issued
by baniks located within the to,:n district bears the letter



the left hand end, to indicate that they go through town clearings. good

Similarly banks and branches of banks located in the 7etronolitan routi

district have the le ,ter "11" in the 'Iargin and all other transfers of b
checks in

the country districts, that is England cno

have Ale letter trea
method of

C*scribe but w



sendin /items to the head office for

ever, all of these items come to London in

in slips and the total on the envelope.


d to the paying bank unopened, and on17 the

He is _ow Socreuary at the London Embbssy.
excitable li tle fellow with a great -_,:and

no humour.

He sz :Ts that if


of common sense but

we do not take t? crack at Germany

pretty soon, ig fbct right away,

Euroe that

He is

uhele -All be no nation in

h,ve the slihtest res.-fleet for our ("coven' went

or its representatives abroad.

I r_i.steel

hira particalarly

auout the Bite of c treaty in the Sente such as Lord B17ce and
I discussed.

He was emphatic that, if pro)erly handled, by the

Administration, it could be nut through.
From tqere I went to the Frinces Club and olt-,yed sauash

with Captain Swmington.

At six o'clock Chandler Anderson called

at the hotel and we had a ouiet chat about the American position.

cpncluded his meat settlement, and apparently with great


He be= ieves that'lresiclent Wilson will lose every

shred of orestige he has if he does not deal vigorously with
Gernlany, also that the country will be in great 1)eril of isolation, colwaerciclly and otherwise, after the war.
Dined with Captain Symington, Shiverick and IiettenL.nt Queke-d_r -t the Savoy.

Late in the

vening on return to

rl-nornn 'orbes called to say that he had Dreplred
_L-uurview Lord Kitchener, which he


['01-,(-f -here his memory was inaccurate,

r_rc_ged to meet him



certainly the matter would be considered.

Then called to

Gow of the Lo .don Joint Stock Bank, r_n0 found Hr.


Hr. Gow also o fered the services of his

Brandt there.
ea, :k sayi

r- that they were very conservative, but after all

we would

Lid them of value to us.

Then stepped over to

- grown, Shipley f. Company to say good oye.

From there called

It the Bank of England and had a lonr t1-1: with Lord. Cunliffe,

Jokayne,the Deputy Governor, and

ii.ntagu Norman,

oing over the second draft of the memorandum of conversations
very carefully.

Lord Cunliffe agreed to everything, including

two chni.ges I had made, with the excertion of the para7rarh

about the Banque de France.
from a tri.

He had just returned recently

to Paris he had made without anybody knowing

it, and was in a of mind to criticize anythL,g and
everything the Ban. ue de .2r_nce did.

He says that Aley are

6istrustful, do not cooperate, .._nd as he expressed it--instead

of looking upon us as a son, which the Bank of England would

be inclined to do, they were more inclined to look upon us as
a grandson.

The dispute between the two institutions is in

regard to gloat uhe use of gold i., the Banque de France.


told them briefly of my discussions with them, and that in come

ways I sym7-"d with them

iith the attitude of the Banque

de France W(LiCA really carried a greater load of responsibility
in some

than the Bank of England, and particularly that

the French people worshi.Ted their gold as a sort of fetish.


thought that Norman agreed with this view but Lord Cunliffe was

a.: of'

e::fort TINe

(7o h=1.

I ,old

111J I

11 11

St to

'1 0 so .



-J1n no de .7r- nce into the

bout vo,1_10_

b:.i 1-




out their vie' s on th t





ter, ,

he uhou "at

:LLo, L





0 b::,1

1.:(' 0








elbodieC in the ,lemorndum.

u-lon LU C



that I u,iderstood the situation in France to be

I told. Lord

materially different from that in 11-T1r-nd or the United

States---that the Bancue de Pronce cid not have to pay gold,


it could pay silver, and the ch.rac'Lr of -pa:,-rent they made

was really directly controlled by the GovcralenL, c)nsecuently


Jut h. h n(ile do 7rfnee on u:Le


a VC the







hihly Ciecir ble.

aris to v,hich the governonts assented

relati inp between

the a e cy)en spirot, ro to rneak, through

ITlich gold drht flow.

y )11.1C,

.e lootin,y

nd ourselves wo-alc reuire _n etr-legt1 z4Treelent



They agreed

uh, t this w' r so and.

Lord OunliLfe e::')ressed the ho e th. t


ca,le over :_ere a:ain before the Tln vies put into


JO IL he a deterzlined effort to persuade Pallain

to f-0 as f: r as


ulao BL'ul: of End-1, nd had c,one.

They regr rd

s ti lid, stupid and obstinate, but think that Sargent


Sergent is a Irian of ability.


I WzP very much alused to

ilnd that Monsieur Iallain had Presented Lord Cunliffe
the same medals he had presented me.

Lord Cunliffe was

inclinea to treat then with some disresl,ect.

I was -roatly

amused at his huirlorous but expressive remar",:s about "the

old bank".

He adlitted that the Ba,ik of England was a

museum, but that after all they could change when necessity
reouirea, whereas the Banoue de France was much more a museum
than the Bank of England and apparently did not have the
capacity or courage to change.

Norman surprised me by saying

that in his opinion, if I had proposed definite guarantees to
the Banoue de France, they would have jumped at it.

I had

thoug:ht that over and talked it over with Herman Harjes but

believe it would have been impolitic and would Probably have
aroused suspicion.

The matter can be better dealt with

Lord Cunliffe told Norman that if he felt that way

he would nominate him hereafter to deal with them--that he
(norman) was welcome to the job.

We all agreed that the memorandum just completed

was a matter of greatest possible imPort_nce but that it would
not be fully effective until we broke through the reserve of
the Banoue de France, and for that they relied upon us.


.o.-n-c,s me to come over again before the thing is

settled, and I told him I would try and do so.

We shook

hands, exchanged ex ressions of good will, and I left with the
understanding that three conies of the memorandum would be











0".2110 011,

..-f sse,-,


















i ,:_ 7






-.1.1) .7.72.0: 1












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, Cr






t., i '






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7. i F^:, 0 1. 0 . -I





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believes that wages will be rather high in 3-x-aand, and in that

respect only differs in the statement which I made to Lord

He thik.ks that production throw-shoat the .-orld will be

at a r. te never before known and that there will be a great wave
of prosperity, new enterl?rise etc.

absolutely wrong.

Personally I think he is

He is one of the most ardent advocates of

the restriction for the use of luxuries in England, and thi_ks

that only by that method can the country carry the burden of
taxation after the war.

In discussing German finance, I was

sur,)rised to find how liLtle information he had.

He thinks

they are very much stronger financially than they are credited
with being.

That they have not inflated their currency

through the issue of Dahlen Kashen Schein,
issues to the extent that the world supposes.

and similar
He w,. inclined

to agree that their great Problem would be the purchase of raw
materials but he thought that the credits for this purpose
O'ould be negotiated with rich Germans abroad, and which would

give them a great fund to use in rebuiling their industries.


told ILL2 I thought that most of the rich Germans were German Jews

who would not be inclined to make extensive loans unle-s they
were assured. of gold payment and that Germany's difficulty
would be to maintain .p.-old payment, and she would Probably

struggle with it for many years.

Withers im ressed me ns being

a text-book man who expounded theoretical formula not based upon
business experience.

On the other hand, he is certainly much

sounder than Paish, whom I regard as an extreme op-amist who is

constantly struggling to supl2ort his 0:tvism -ith a lot of

theoretical arguments that won't hold water.

He smoke very

forcefully of the traditions of .uhe country being upon a hin:her

than thA of cny European nation; that our treat:lent of
China, Spain, the Panafila Canal matter, Cuba rJriC_

inCicated that ye


been educate 0 to deal with these inter-

national questions on a very elevated standard of internatio a

:e now had an op-oortunity to say to the world


that the rilts of all neutrals were imilerilled
-orocedure, an


e hz6 deteriline0 to thro


the weight of

our influence in iith the -Mies to stop it, not only selfish
in our own behlf but in behalf of similar neutral states that
were today L.bsolately


ithout -protection.

'-)rch 31st:

Cameroil l'orbes c.

breakfast and to discuss

is in

_further the Lord Kitchener memorandum.

should be re-drafted and handled.

e agreed as to how it

There was no doubt in our

minds but that Lord Kitchenor's talk to us was for the -ourflose

of having it used, ,nd I see no objecti-on to turning it over to




Friday, Ilarch 31st:


Dined in the eveni;,R at ambassador rage's house

Symington, and found one of 1.rthur Fowler's young' sisters there, her
brother havin- been at the ..mbassy and who is _iow enlisted .ith the
Continued a discussion with 2.r. PaFe,who
3ritish 'fling Corp.
told me sole very interestinF thi_.,ge which trans,dred

a visit he

had that day 7. ith Sir :award Grey and with whom he spent an hour. A

most interesting and important thing is Sir Edward Grey's statement
that while commercial hostilities would not be
war, nevertheless there would be some thi

rrcticable after the

that could be done, and

would have to be Pone to satisfy public opinion here and in FrPnce.

Saturday, L.pril 1st,

Afttr picking un clubs 'n

golf clothes from Captain Symington

called f.'t the Ihbassy for -mba;isador sage and we went to the Comb

Hill Club for golf, where I R. ve him a Rood trouncing.

much just now, butto be very successful at the fame
on his mind his

Loki me some interestand Par-

:ith _ rs.

on of commercial development


:ith Captain


Pap..e alone, I

at the lAtz, L,hen Captain

r and to the theatre.

s. Page.

He has too



return and elI:plain the situation over here.

It seems he

has written President Alson suggesting that he thiliks it

He thi..ks the oituation in
interesting wireless message.
prerwrarwer-r----,-Holland is serious but intimated that he knew no more about

Undoubtedly pressure is beinE exerted

it than anybody else.
from some ouarter.

Herman says that Lord Cunliffe is much

pleased at our general understanding, and after going over
the memorandum once more very carefully he is convinced that
the extension of the arrangement with the Banoue de France is
most essential but that we must do it.

would snoil it by entering in neotiations.
Called at the

had gone to the Doctors.
Mr. Hirst, and 10111i(i that

ibassy and missed
Lis() called at Lrundel House to see

newspaper had moved.

Lt any

rate, it was _aot in -Lrundel House just off the Strand.

_oril 3rd, 101G.





erle re bills, methods -nd







b: Lcujilin re his conversation -ith
Be?: ig in 3erlin at the unveiling of st:-tile prec
_:1)eror by U.S..Llso his relations
wj h Ger .an -mbassador in Serbia lien located
_lso re Ale ootash controversy in -Berlin.


.:olcott is =anging set Relitt:1 War T]merrrency Currency.

set French
to forwt:rd b: lance of joosters b7 mail.

Canulete set T..utch currency



You -;,Tisl].

dvi :e

to see Bro6erick's re:)ort

J B Harris


Graves sent his re,r rds rom
c-re of J F H's valet.

Obtain from Treasury Depart. lent in Washington a set of
proofs of P R E notes to send to Banoue Ce lirrsnce

Send Sir Christo-nher Nugent a list of names which the 2


t-1-es on bills

Lr. Graves, Iaris, advised :..rou that Toulmin or Lambton would
be in Hew Fork :ithin the ne::t six months

Lr: Harris, a director in Lloyds Bank, London, will be in
Hew York
the net two months.
You _re er.:.-ncetinc

re-lj from Russell Jr., re whereabouts

Additional Material.
1. Strong's letter to Governor Pallain, February 26, 1916,
with a
memorandum on cooperation.
2. Memorandum regarding Commercial Credits(Harjes Memo)
3. Memorandum re eligible bills, 1916.
4. Check Collections in Paris.
5. Check Collections in London.

6. Revisions of a conversation with Lord Kitchener,
March 24, 1916.
7. Elaboration of conversations in Paris, supplemental to
Sir Edward
Holden memo, and Bank of England memo concerning German securities on Dutch boats.
8. Seating plan at dinner in Strong's honor in London.

ndum regarding commercial credits.
s recognized that the creation of a large volume of commercial

credit, under which long bills will be drawn in dollars by American
e : :')ortrs, for acceptance and discount by -merican banking institutions

under red.ts guaranteed by French institutions, would have the effect
of relovi:ig the market of offerings of exchange and of relieving the
deland'or dollar cable transfers.

The longer the drafts run the longer

the acount will be postponed, and consequently the more time afforded
for ar:..ngement of large Government or other loans in America.


diffictties encountered in arranging commercial credits with the bills
to be sawn by American sellers of goods, are in part



Unfamiliarity of American exporters and bankers with
this oubiness;

T .e difficulty of affording satisfactory guarantees
to ilmcrican bankers for the credits;

The risk imposed upon the French importer of paying
high prices for dollars to reimburse the credits at

,....The necessity which now arises for the French banks,

which guarantee these credits, to take their own

liquid securities (Government bonds etc.,) out of
their portfolio, which they are reluctant to do,

necessitating the French importer buying the bonds

and coseolently obtaining no additional credit.
It is suggested that some of these difficulties could be obviated
the following programme:

The French Government authorize the issue

of a bonl or certificate which the Government would advance or loan to
banking Institutions and bankers for a consideration, such bonds to be

-y)ible in dollars (in


old) at three, six, nine or twelve months, and

to be pledged as collateral to the Emarantys given to the American banks.
Lc) the American institution which accepts the drafts and has recourse

ai2ainst the bond as collateral, the bond would simply be the obligation

of the French Government to pay so many dollars in gold at maturity.


bond should stipulate that the Government would undertake to furnish, say
through the Banque de France, at maturity, exchange in dollars at the
rate of the day, either on which the credit was opened or on which the
drafts were accepted so that the French importer would be certain of
cover, and French banks certain of receiving cover at a rate of exchange
iMch woulr'

ilt involve loss on the goods imported.

It is recognized that to make such a elan effective in large volume
present method of drawing must be abandoned as the few institutions
)0th sides now arranging these credits will soon reach their limit,

it does not offer a sufficient variety of names on bills for the
:.ican market.

The :lan could not be handled by a griup or syndicate, but should


landled as a business custom.

This change should be brought about by

a working arrangement between the Government, the banks and the customers'
of the._conunercial banks, with the object of educating French im-porters to
get bank credits for their imports, and of arranging as long drawings as

Laerican institutions are willing to grant.

In each instance the French

should ascertain which American bank the American exporter is

accustomed to deal through and, if possible, arrange the compercif-1 credi

through that bank where the exporter is already well known.



U 2AaS:

france, while i:otes of the
Checks are so lile used in
largely used in effect-.
gold aro, ill :liar:Jai times, co
de France and
oollection system is
th,:.4 no such hi Cal; organized
ing payments,
It should
LI the United notes.
developed nor ie ee necessary we
of the do:aestic trade of Prance
mint that a vast auount
be born© in
third days to a maximum
by the ww of bills running from
is settled
"-hose bills are
three months.
--the Isual tilao bowilg
of six mouths
Frtince. which would be
dolaiciled at the Bamtue de
not universally
t'aris which would
system, nor at the bank° generally in
the Germ ;n
at the office of
systea, bat are accepted payable
be the :'fish
residence. The
at tho drawee's personal
he drawee--in Llanw capes

plzAae of i7amedirAe cash
nchLnge, therefore, takes the
All of
of the Dill of 1:xchange at
accounto, L_:ad the pcy:Jent
3ettlements of
to the
majority of oases, made directly
seturity is, in the vast
r_nd brokers that
oustomary for the banks
Banrue de Frz.nce as it is
ith the Banque de France within
bills to discount them
-lad these
of five thys charge
maturity, as the miniaam discount

five &: re of

e::pensive to the

is figured,,to bo loco
b7 the Banque de irunce
This ,:laces a great mass,
collecting the bills direct.
holder than
ci o lrLnoe, not
the hands of the Banque
for collection. of bills in
Those payable in the
tho ,rovinces.
only in ::aris but throuchout
own agencies,
Banque de 171..ncc to their
Provinces are sent by the
the French _.rovinoes, and
ostabliShed in everyone of
which :Ire
ngency they employ special
instances where they have .;Jo
in some



rs.-)11octioue c-Lencioa, or even the officers of other banks.


-r. .:obineau, head of the discount de.)artment at the

Ak3ancLue de France informed me that he had collected in Paris alone
L_El many as 100,000 billo in one day, requiring the services of

over 1,000 messengers for the purpose.

This custom, of course,

has a tendency to reduce the use of checks.
sonio of the ban;cers in

I was informed by

fi.ris, the use of checks watt so little

understood that a man could not even induce his wife to take a
check when oho wanted money, did not understand about endorsin
it, and 11%d doubts as to whether the night be able to get the

money for it
hold money.

French women are accustomed to holdirk7 the houeeIt is their prerogative and they ._,re scrupulously

carefUl to



as to

how ouch of the mouey entrusted to their care has been spent and
how .111oh they have saved.

is check book and bank account woul(

ilisclose the condition of their cr_i.Sh account, and this they

seriously object to.
7han the Banque de France made its allpeal for geld, one
difficulty encountered was the necessity which watt then imposed

upon the French families of disclosing how much gold they had

Baron de Neuflize told me that near his village, Chantilly,

a little hamlet of a few hundred people and of which he is iaiyor, in
order to got the gold he had to hold. a public meeting in the town,

tLke bank notes personally with him and have the Certificate of
Llerit in blank (which he was authorised to fill out ,7md sign on the

spot) filled out by himself personally as ho ha

no clerks to aesiet.

:Ito village people were convinced that no one would know how much

money they had given up, and out of this little settlement, in a ver;

*few days, he collected 125,000 francs in gold.
Under each circumstances it will be seen that the check
Txoblem in Prance is not important.

The BAlcue de Prance has made

reduce induce a greater use well as increase their gold percentage
efforts to I;heir note issue, as of checks believing that it would
and Kold holdings.

So far these efforts have been without success.

At a meeting of the oTficers of the bank, however, ane which I
attended, this matter was discussed.

They all agreed that it would

be a great achievement if they could bring about this practice at
the present time, as they estimated that there were five billion
francs of French bank notes now hoarded in :ranee, largely by people
who had given up gold or Who had always hoarded. notes in preference

to gold.

Under the above circumst:mces no co-operative effort in
the matter of check clearing and collection has been undertrken by
French banks until in recent years :shear a Clearing House was established in karie,comriosea of about twelve to fifteen member(' and

consisting only of the most important and influential banks.


operations of this Clearing House *ere entirely abaneloned when the

war broke eat, and are not to be resumed until about the first of

The Clearing House makes two clearings daily, and the

average turnover through the institution by the two largest banks.i.e

the Credit Lyonnais and the Cavtoir National D'irmcompte de Paris will

run from 700,000,000 to 850,030,000 francs per month--a trifling amount
Apor:,pared with the volume going through the New York City 0learinc7


The cult own is much the same as ours.

Checks are sent

twice a day to the Clearing Eouse, and the balances are settled,
not in cash but by a Special Order on the Banque de Prance which
results in the debit or credit to the respective accounts of the
institutions that were either debtor or creditor at the Clearing

They have only admitted very strong institutions to

clearing as iastances have arisen where some of the weaker banks
have given orders on the Banque do ?ranee which hive :lot been
promptly honored.

It is customary to send bank checks found to be

prior to a fixed hour, along lines similar to the New

York practice.

It is the general belief in Prance

hat the laws of

the State are inadeenate and not sufficiently severe to enable
prompt prosecution of individuals who use checks improperly, load

that has also been a deterrent in the development of the check

at the present time all the banks and bankers of the City

of Earls aro collecting chocks by hand. at considerable expense rs,nd

inconvenience, particularly at a t'

e when their clerical forces

have been depleted by the war and temporary staffs of women employed.
Country checks:

The practice in handling country checks is somehat
similar to that in vogue in London with certain variations.


ing for various exceptions to fixed rules or customs, it may be
said that country checks are handled by the banks in lario by one of

four different methods, and those these four methods cover the vast
majority of check transactions.

First, 1p;- giving immediate credit to a customer whose standing

is undoubted, in which case the custouer is chrged interest
at bank rate plus, say, 1 to 11:i for the estimated period

required for collection, which varies from one to three days.
This applies to a very :mall proportion of the chocks handled.
Second, by giving deferred credit, in which case the account
is credited with the amount of the check, but if the customer
draws any part of the credit he is charted with interest on
the amount drawn at bank rate plus a commission charge, or a
little additional interest upon the amount drawn if it impinges
upon the amount of uncollected chocks.

This is similar to

our system of "holdout".

Third, by giving credit oily upon "advice of payment"


m4L.ns that the custmiler is not permitted to draw, and if he

does his chrok will not be paid with

"advice of payment" is


In zione of these three cases doses the customer receive interest

on the amount of the balance until after collection time, or
transit time has elapsed, and only in the first instance is he
expected to dr:,v before the transit time has elapsed.


he second

instance he in penalised for drawing, but his check would not
lecessarily be refused.

Fourth, by giving inmedtte credit, or by making immediate
payment by "red check" on the Baas

de Prance for a check

the following day, in which case the check deposited

by the customer is a "white check".

-led checks used

by the banks are drawn upon the Banque de ?ranee and
are payable an the dc.y drawn,

7eite checks exo riot

payable until the following day.

These white checks,

which are (les= in anticipation of the recei . of funds
are cashed by the big banks, at times, for their
customers, by the use of these rod cheeks, and tnie is
simply another method of extending credit the customer

being invariably charged bank rte
for one day plus a

ission for collection charge.

stated above, is very little used.


ods cover the great voluiao of checks.


erence solely to settlements in the City of

of rediscounting bills withtthe Benquc de

intimately associated elth the general system

en barks-only a few of the larger banks

g of the facilities of the Banque de France

portfolios when needed, and even those

nvariably discount bills when within five

order to seve the trouble of expcneo end

g French banks rely upon their balances eith

e as reserve to a much greater extent than I

immediate convertibility of their portfolios


gives them a feeling of assurance as to their cash position.
think it may be generally said that so far as checks sere used in

France, it is only in rare cases, and only for the wealthiest
customers of French banks that immediate credit is given on checks
deposited, and in those cases not only is no interest allowed on
the balance during the transit time, but interest is charted at

bank rate--nd in most instances a small commission in addition.








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I have not completed my inquiries on this
sulojoct in London,
but am expecting shortly to go through
the London Clearing House
art in Holland of Martin's Bank Limited
Secretary of the London Clearing Bankers
Association) who is
regarded an an expert on this subject.
Pending a complete report,
I can make the following general
statement in regard to the custom:

The clearings through the London Clearing
House are continuous during the day, and the balances settled
by an order on the

Bank of &gland.

All chocks, A.thout excoption, go through
Clearing House on one of three basis.
The first class
known as "City chocks

for which immediate debit-or credit is

made as in the case of clearings through
the Bow York Clearing
House Association.
These are checks drElyn on banks in what is
gonercaly understood to bo the City of
London; which, for the
purpose of clearings however, is described
by an arbitrary line
that takes in some of the parts of the
Greater City of London,
outside of the old. city, such as
a portion of Westminster, etc.

The second class of checks cleared,
consisting of those
drawn on banks or branches of banks in
the :letropolitan

District (which is that part of the City of London immee.iately surrounding the central area)
and this class of

chocks is described as checks on the :detropolitan
Per those, debit and credit is made
the following day,
Living one day within which to gat settleclonta
from the

outlying districts of the city.

The third class of cheeks are those drawn on the Provinces.


That is to say, all of England, Scotland, ',Tales and Ire lnnA

outside of districts set forth la the first and second

For these chooke three days deferred debit and

credit is allowed.

The volume of checks in Englund is immensely larger than in
7.i'remcs, but of course not eo large Ge in the United States.



of branches maintained by the large English and Scotch banks

enable settlements to be mado very Promptly.

I shall not now

describe in detail the method of settlement, which is very simple
and effective, us I hope to get a complete set of all the forms used.


In general, however, it may be seid that all cheeks, "City",
":metropolitan=' :end .°11rovincial" handled by

banks are

settled through the Clearing mouse upon the terms above described,
and that the adjustment of the reserve balances with the Bt_._ k of

England, resulting from these three methods, in effect, eliminates

all "floet" in the English banking syste.

There may be ese.eptions

to thin, but in general the ut,Lteelent holds true.

The eystemAx so

much sounder then our on that I feel sure, even under the most
difficult circumstances the doreestic exchanges throughout Encland,
Scotland, .Tales and Ireland would never break down under strain, as

hem se frequently happened rith as.

Suggested heading:

The followinE is the rlbstance of an interview with
Lord Xitchener by 2:essrs Cameron Forbes and Benj. Strong Jr.

No effort has been made to reproduce the exact
language used but simrly the purport of the conversation as
recalled several days later.
Lord :Kitchener gave the impression, if he did not

actually use the words, that possibly only six months would
be required to end the war if the United States took part.


On nage 5, paragraph 3 mirht be alaborated somewhat

to emphasize the point whieh Lord Kitchener made--"that no
enduring peace was possible through the comAmte destruction
of the Junket military party in Germany which would have to

be brought about by undeceiving the German people."


the German people were most subrlissive as result of long
experience under the military party, and nothing would convince them so effectively that the war was a hopeless one

and that they had been led into

disastrous affair as the

severance of diplomatic relations by the United States.

Just before the last paragraph on page 5

I suggest

the follo-Ang.

Jr. Strong referred to the growth of a certain irrita-

tion in England respecting the attitude of the United States,
and Lord Kitchener interrupted to disclaim the existenoe of
such irritation.

He said it was rather a misundertanding or

lack of appreciation of the policy of our Govermlent.


Strong then said if it was not irritation, it might become
irritation as the result of the agErressive ,.nd rather boast-

ful attitude of the American press on the one hand, and of
the propaganda now being nrdertaken on the other hand by the
English press to )/).note a continuance of the war commercirlly

after the military war had ended.

That nothing would so

promptly establish a basis for future wars as commercial

that attempted by un-natural ;leans to interfere

as commercial Aai fs, preferential such, for inst7,nce,
with the protective relations of nations - treatment of allies, etc.
Lord Kitchener said that was not directed against the United
States but against Germany, to which 'Jr. Strong replied that

he understood that to be the case now, but that possibly if
the United States held aloof until peace was concluded, it
would nevertheless airily to the United States.

That is wrs

necessary to exulain somewhat the difficulties with the

_merican 9ublic opinion in regard to these matters.

United States had never had a foreign policy in the sense
that the European nations had.

The sole interest of the

United States in foreign matters consisted of the respect
they felt for ,iashington's advice in regard to foreign

entanglements that would involve them in

he European politica

Their love for the :ionroe Doctrine, both of which

were designed to protect the integrity of the United States, a

t.irdly the more recently developed and still but little under
stood policy of the open-door in China as developed by Zr.Hay.

That the same situation prevailed as to the financial relation
of the United States with the rest of the world.

The develop


ment of our resources required the use of all the rands
raise at hose, or in the cheaper markets of Europe.

We had

been borrowers abroad and not lenders, cense, uently had

aecuainted ourselves

ith financial co


the credit of Governlents or institutions.



i-abroador with
In other words,

the peonle of the United States were not conscious of any


any international responsibilities and had not regarded
themselves as of any importanae in international affairs.

Now, suddenly, a war broke out which involved the whole of
3arope and it developed that the United States was of very
great--possibly of deciding importance, both politically and
financially on account of their large population and .:ealth.

It could not be expected that one hundred million people
would, in the short pitted of this war, abandon the ideas
so deeply planted in their minds, in reP:ard to foreign
a:fairs and ea ±denly reverse their former view of what '.he
country's positio:1 should be.

Recognizing, however, the

im ortance of our position, as many people now do, it would
be deplorable if misunderstandings arose in regard to
commercial and financial matters which would make the
United States and Great Britian bitter commercial rivals at
the conclusion of the war.

Lord Kitchener then made a

statement in regard to the importnce, from every standpoint,
of peace being concluded by the union of England and the
United States in some arrangenent which would bring all
English speaking people together in determination to prevent
any recurrence of Germany's aggressions.

(This lght be

somewhat elaborated in dictation).

It seems to me that in conclusion the statement
might well contain our own view of Lord Mitehener's remarks.
They impressed me as haying been carefully studied for the
purpose of creating the impression that no permanent peace in
Federal Reserve Bank of St. Louis

3urope could be expected except as result of an arranger:Icnt

in some manner between Great Britian and the United States.
That the present was the opportunity to lay the foundation
for it, public opinion here would. welcome it, and that no

such effective arrangeent could be brought about periwnently
by a similar understanding between England, France and Russia.
It required the weight of influence and the financial strength
of the United States alongside of Great Britian and her fleet
to make peace enduring.
Lord Zitchener, in order to make the statcy.lent as

impressive as possible. abandoned the reticence which is
supposed to be characteristic with him and gave little
opportunity for

r. Forbes or ITr. Straig to say very much.

Elaboration of various
de Rothschild, an


onversations with Monsieur Pallain and

other Paris bankers which I was unabl

sociates; Baron

dictate while in Paris.

Some slight indication of the degree to which the prices of

necessaries have advanced is given elsewhere in the diary.

Food, coal, gasoline,

etc., has shown tremendous advance in prices partly due to lack of domestic
production; part1;- to lack of shipping facilities, but to a very considerable
extent due to lack of transportation within France itself.

At the time I was

in Paris the railroads were unable to transJort foodstuffs from the seaboard to
Paris in sufficient nuantities to relieve the urgent demand there.

I gathered

that this was due, to some extent, to the lack of adequPtr, handling facill472re
at the ports, 6t&


Real estate and rents:

Considerable distress has arisen by reason of the

o eration of the moratorium in respect of rent payments.

Tenants under this

law can appear before a Tribunal and show cause why they should be temporarily
relieved of some of their obligations for paying rent and frequently this relief
is granted, am:. the result is that real estate _.rites are absolutely paralysed,

end real estate ovmers in considerable distress.

A large part of th7! investments



tx insurance companies and other investment companies and

corporations are in mortgges and real estate, and with rents not being paid,
real estate ovmers are unable to pay interest---The whole sche::.e seems to hr,ve

been badly handled, and while possibly designed originally for the relief of

families where the men were at the front, advantage is now being taken of it by
all classes of rent payers and the effect is thoroughly bad.


I was informed at the Banque de France that to

about 600 of normal.

collections are


Foreign drawn bills are now practically a negligible quantity






All discussion of the attitude of the United States


Federal Reserve Bank of St. Louis

Petain constructed no less than fifty bridges for use in case


have a meeting of the French bankers so as to start a movement among
bankers to
Federal Reserve Bank of St. Louis

bring about peace discussions.

He gave Fraser the impression





Co. Ltd,

G. C. Cassels, Bank of i.ontreal

Sir Gordon .Lairne, Bunk of 2ngland



Henry Bell, - Lloyd's Bank, Ltd.

- Dep. Chn. London County
Westninster Bank, Ltd.

-441-r-fthrtrn-tdcti-s!r--m.--1-!1>ft-zic-mts- er- riirecn&za-i

Sir Edward holden, Bart.
Chn London City
Midland Bk.

3 jr

The Ht. Hon. Lord Inchcape, G.C..G.,

Llir J. Fortescue A.annery, Bt.,
.youth ',estern Bak,



Institute of Bunkers
Prov, Bank of .41z1and


John Purcell, K.C.B. - Chan.,
r.ational Bank, Ltd.


V.ssar Owith - Lep. Chn. Bankers'
Clearing house . Chn. Lloyd's 7ank,

Benjamin Strong


Burns - London joint Stock
Bunk, Ltd,

F. Chaplin

Ht, Hon. Lord Faber

Wrest. Associa-

tion English Country 7'.unkers


Beckett's Bunk.

Sir Felix Schuster, Bart. - Governor, Union
of London & Smith's BnYli

Coutts & Co.

J. Deaumont Pease - Dep. Chn, Lloyds
Bank, Ltd.




zirtin-Holland - Hon. Sec. Bahkers'

BLnk of Liverpool, Ltd.

ckiktiL_i a_A(A-f
-111.T-Loft. ". Huth Jackson

1.,--eusas 4onuai-tte-e

Clearing House

R. W. Whalley, - Dep. Chn., Parr's Bank,

J. F. W. Deacon

A. A. Tulloch

T. H. Whitehead


L.Lnchester e


.hir,trict Tanking Co. Ltd.

Lartin's Bunk, Ltd.


Williaws .1,eacon's Tank,


Chartered Bank of India


Australia 6. China.

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