View PDF

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

F.D. 12A.3



Federal Reserve Bank


District No. 2
Correspondence Files Division




(3 u




pE re_ S


I 1.2006,1,6




i'vr- t4n e


B.P-s441,-44,4-an from Federal Reserve Board

Letters to Benj. Strong dated 8.13.18 and 8.14.17'



oKLet /4;a-a ,42,

Zd,,Ezi hu22 /4-






/74 f(rzat



.7/ `47






dx",<,-t tzAZ-






,,,eot° ,e4V





K&A eXe

6e, 4- 4,,A4




















4.-ve 46,



1U)ti/t a-fiet&L









icz_a( A,



/0- zair____A ere" ptt


4e-0( C


Au.3ust 14, 1918.



I wrote

you yesterday from New

York, and upon my return


here your two very dear letters of Au'..ust 9th and 10th -also your

I will do my best, old man, to live up to

letter of Alr--rnst 12th.

your wise taaohings.

Of course you realize that it is easier to

shown me what

teach than to do things, but you yourself have

patience and

courage can do in



I trust you will not

find me wanting either.

As to going back to "money grabbing", quite between you and me
nd the angels, it does not appeal to me at all.

will take me sometime to find my

On the other hand,

It is impossible--to


concentrate your whole being upon one thing as much as I have done
and then all of a sudden wipe it out and be ready to



It will take time to find new ground under my feet and to


develop some new interests.

It cant be done in a jiffy, and it is

for this reason that ram going to gat away.

We are leavin


I wish you could

as I believe I wrote you

day eyeing from :ea York,
Louise, and from there to

yesterday, on Tues-

goin; via the Canadian Rockies to Lake
Lqke T-thoe, where we expect to stay for a


What I shall do /then I return to New York I do not yet know,

but probably I shall remain
'own in writing for the

in the


benefit of my


quietly, and put

grandchildren my connection


with monetary reform since 1907.

I have written in a rough draft a pamphlet which deals with
Senator Owen's hearing in connection with the so-called foreign
exchange Federal Reserve bank.

It is enough to blow this "S.O.B"

out of the water, but T have some doubts as to the advisability
of my getting balled up with a discussion of this kind, which most
of the people will

believe I have started out of spite. If I can
I shall be only too happy to send them

get some one else to do it,
the material.

Maybe I will send you the stuff as soon as I get a

little further advanced with it, because I would like to get your
reaction as to what you advise me to do with it.
As to Chapman:

he has

been made an Assistant to Broderick,

however, so far his salary has not been increased and to stay where

he is now will mean a loss as a7airst what he carnd before, together

with what I gave him


in ac


i(- He is a live-wire, loyal and

intelligent and I should be only too happy to see him get an opportunity for a broader future.

If you can offer him

very glad to have you do so.


that I will


I believe that if the Board

will only give him a chance, there is sufficient field for a very
useful activity for him 'in Broderick's office.

able men who"know the ropes".

God knows they need

Enouh have left, and I wish for

Broderick that the Board would enable him to keep Chapman where he
can be useful to him.


be of help

In any case, an offer from you will at this

to him.

Take mod care of yourself and don't get bitter about this un-


intermezzo, as far as I am concerned.

It is discouraging


and aF7ravating that in a work that we have done unselfishly and

to the very best of our ability, there should be such a thing as a
rouH7h and not entirely unselfish hand which interferes with securing

the best results, but some how or other I have a f-aling that at
some time our roads will converge again, and that good work done is
nev'er lost.

2enj. Strong, Esq.,
Woods Hole, ass.


Hartsdale, 7. Y.,


rovAla er 1, 1918.

rear ?trona:








Yesterday 2. tried to look you up at the
Tlaza but found your placs empty.
I dropped
'n at the bank and had a talk with 1,1r. Treman,
.no told me about the brilliant risults of your
a,mpaign, upon which I congratulate you vary
He also told the that you had gone to
Lenox, and I am glad that you are taking a rest,
thouh I do regret that you did not take it
out here.

ometime ago I spoke to you about the
article that I had written on Cwen's investigation.
Inasmuch as you may have a slow tithe
where you are, I send you this thing herewith.
If you care to read it, do - if you don't, don't.
I shall be glad to hear about your future
Please don't forget that with the
7arburgs, frisndships outlast official relations.

r'ith best wishes for a pleasant holiday,

Eenj. Stron:-, Esq.,
New York.

ncerely yours,

On Juno 0, 1918, at 8sliator Oweits reovst 1 appeared
before the Committee on Nuking and Currency- oS the U. S.


jenate in order to eive testimony concerning tthe advisability
of the eetabliehment of the Federal J!oreign exchange bank,
proposed by the Senator for the purpose of' "eel nt a ining

the rate of the ciol4ar at per in fareiert cow-Aries and of
removing "unfair exchanee profits" alleged by the Senator
to be levied by Pena ri oen beaks from Amer ic at 0 owner co en d

I presented 'myself before the committee in


with Governor Harding, ifiveletent Secretary Crochy, Mr.
l.bert 'Streams end T. F. T. flente Mr. 'Crosby, in eecretery
e-- ---; edoole absence ena in view of a 10.043r written to the


Notate by the PreshAnt, cud not feel at liberty to ere himself froEly; on the other hand Governor ,,erding
a full eta tenant concerning the problem of the dieman% of the dollar' exCennge in, neutral countries. He
shewed himeelf reads and anxiety to discuss tho pending
bill whoa 6ena1,or On adjourned the heering In doing

that, 'the senator veld that he realeed the bill ill its





present form was /tastily dram and defective, that
wished to await 0.ecretary MeAdoo's return before
'urther proceeding with it and that he would rewrite

it in consultation with the Federal Reserve Board in
Mee he watild decide to further push the measure.
when we appeared before the Committee none of us, in
spite of our request, had been provided el th copies

of the till testimony of the preview vitneesee.


printed copies of only Ile firet few hearings had. been
made available. Sines then I have read the oompletto
record, whioh dooe not contain the Senatorge statement
above referred to nor le there any evidence at all
that esere. 6trause, rent end I appeared
and were not

heard. On the other hand the record shows
a number of
direct charges and innuendos against the 'Board, its

advisers, end the Federal Reserve banks, charges which
Pb oul d not be left uncontradioted.
In July, *en it

eeeeme clear to me that while my conneation with the
Board was likely to end by Auzeurt 10th, senator Owen,

thottit the head of The agitation against my reappointmeet, did not intend to give me an olvortanity to
again before his Committee, at leaet not eefore Aueuet

10th, - I dictated a memo, designed to analyse the hear-

ing and particularly Senator Neale uharees and contene
tions. I diu this beceuee I felt that I owed. it to



to leave, for the future, a definite raoord of wy views,
whieh ATO in entire harmony 'Nith those express04 before
the ColzmIttes by GoVernor Harding, mad at the same time,

I wished to disabuse, if possible, the public Sind of tho
impression that the Board 'As favoring the Sanator'a proposed legislation. Tho danger t4at the publio be 444isled
in this respect hau since been Increased by the iszue of
Senator Oesnls circular letter of August ist, addre4ved
to Importers yid exporters in Apite of the atatoment 4,44e at
the olosing of the hearing to two Board members and officials
of the Treasury. The 4uostionnaire and statement contained
in this eiroulei letter are au follows:


Would it servo your inik.lrest ILO ap levorter OT


lOuId it i.trve VOUT illtuT44t0 to have such u toitalk

exporter to have established a Federal Reserve fort!ign bank
throuh which you could obtain crelit information with
rag rd to foreign buyers Ittd eeiars, and conditions of
shipment or exc:orts lnd imrts such AO insurance, storage,
4ou1d it .serve your Ihter4at4 to IINvo, throis4t such
institution, international exchan4o stabilized on 4 6491)14)
of reasonable comr,oritation for rvice randero and the
Altrloan dollar maintainel at comnercial par?.

serve as an intevaeliary to plao ir4tornt4tiQnal commercial
FederAl Reserve Systetti, in tho
a4tanoss, throlgh
principal banks at the Unitea Steitae?
4, ro you get accommodations as los aa the British
per cent per annum - on international aceeptmerchants t.


To you favor setthlishing thu Federal Reserve

.foraign bank? If you do or if you dO not, will you please
give your r4asono?


The Federal Reeerve foreign bens propesue io Intended

to begin with a oapital only suffioient for 4 nes establiehpent of ti e ohe.rioter, luavig open the exiiilhaion of Lite

capital aa the needs of the American oomaieroo re4uire.
It *ill be controlled by tha Federal Reaerve Board and
a board of directore reprosentiLg the Government ei the
United Stated. Thus, the bank would have no selfish interee,
to aerve, but woulA ha vu oxoluJi7oly tnu ibtur,J6to of tho
AmericKn coameree at heart and would, becauae of it constitution, eceosrate with other banks eand bring into t4'4e eervice
of co mere. on ,fir terse the full banking powera of the
United States. At erweerit Lombard Street, havin a glantio
available_ (=pita' rereeenting the barite of the whole world,
will eAtend crefSite at 3i per oent, and a number of Amorioen
banks are using Lombard Street for the .accommodation of their
on Uii4tOMOra, thul pvirig
iatwroat abread and k..uJping In
London a businees which should be kept in this United States.
Attavhed hereto la a oopy of the bill, aub'ject to amendri
vents found ar.lviaabla.

It is believed tht thia bill, if enacted into law, mill

*serve to stabilise the Amotioan dollar and make the Collar
ut3ndarl meaeure of v'Alue in international oentroto, and
therefore very greatly promote AmerloAn cemmoroe, the value
of which le always mearourec,i irimarily in tere of aeliare.
olicy of Great Britain of keeping her curreney
at pir la well known to everybody, and it id believed that
the Amrioan rollar on be tect at pax only by having a
publicly managed institution with this duty imi,eece, upon it.
The ahipping of gold back and forth acrese the ocean is an
econtwic waete and oould be avoided by thia bank".

Aro the above queatione aaked by a Chairmn auxioue to
aaoure for hie oommitee - or for the eountry! - genuine and
impartial information?, Or aro teee letetions asked in
oriaer to produoo all overwhelming indereement of the voonii.
(Salved Vieille of a proacctater rather than a judge?.


Any .importer and exporter1 without any furthor

information upon the subject, i.LI, of course, answer In
thu afrirmative thIl.t he mould be pleased to roocive information, that he would "Ike to
o AiAt.!,ioat dollar
maintained' at commorciml

par, and internatinal exchane

stabilitleA on a. ba3is of reasonable componsa.ion tor
serviat rendered. (He will anewr in tho affirmative::: evsn
though ay would not exactly know shut *comtsrciAi par* is'

what is ru ily understood. by *stabilization of international exohange on 4 basis of reasonable oomponsetion)
The importers and exportero will no doubt anador
the affirmative 4ueation No. 3, thaugh thdy 41'1 not no
any Iliore than r do Ahat the Sonator moans when hu proiJosod
to have the ',sclera' raeervu foreln exch4ngu bank eervt. 04
*an intermediary to plage internatinal uommerolal aceept...
Arleta, through the. roderaI Reaurva System, in the prInaipal
banku of the Unita'4A.States.* Wh4t aro international oottier,

ciml aocaptanees? Dollar bills? or Sterling ana Praf,c
that id forolgn coxehane? or bothi and how 14 thu Federal
Re4ervo 8Y4tue to plaoe thaw ia the prinoipal bahxa of the
Unitdd Statute?. Ifho IL ayatww7 The Fedorml Rulerve
banks or the mumbi,r banks? Dose Senator Owon know? Or

it leuit him better to be as vaguts and delphic 44 pos6ib1e, in order to let evrybody find in these eApres4one


Just whRoaerve Syete

ilia people believe in thu Federal
dã are likely to indorse muoh au4Keetione1

thinking that
Federal Reaerve Board and the Faders/
Roaerva ban ke ara In favor of thal.
pith repaset to queation 4. 'Do you. get accommodation
as low as the British zerchants
per annum - on international aocuptanoes70

Is this an honeat quaatien? The Senator knawa,
all witnossee have freely adaitted, that 410
a/4count rate for dollar auooptanoaa le it present about
.4%, while in the beginnins of the European ear it
about oi%. On the other hand it is 4 mAttur of faot
thu English rate at the beginning of the *a: wilg over
5% 7:x.rid no*, twit AW ahare the military and financial burdens of the Allies, hAts been reduced to 4%.
I have dealt with this 46.rtiettax phenomenon more
4 in my memorandum, auffios it to aay her that Senator
Owen ci(Ata not sk thla quesLion for inforaution, but ih
erder to impart aix40 information which will militate in
favor of an affirmative reyly to hi a 4ueation No. 5. If,
indeed, any ImportJr or exporter, after havir,7 anamomi the
firet four que3tions in tha affirmative, and thinking that
ha 1.3 'helping the Fedoral Reserve Systoa, would fcel grit
enough, or aufficiuntly well inforTed to "give hie reasons


for not favorliv7 the Federal raeorve forein bank*.
Tho tactica ahown in thia oircular aru charsetristio
of thos salnifatod in the ontire hearing.
Noa ua to tho atctemont. Tho Fodarel roserve fore4,n
bank, Senator Or sayo *will be oontollod by the FJderal
naJorra Board - and a board of dirdotors r renttnn the
Government of Zhu Unitod States*. (We shal pass that
language, which is ambi, laoue, for it would indicate

divided oontrol, whilu in the hearing the Senator has sto.ted
that tho Board 4ou1d control. The question /2 dealt with
elsowhoro in thu memo.)

"TO bank would have no soifish
intori,:st to iiirve *** and bring into tho aorvico of oommerce

on fair torsos the full banking poworo of the Unita(' States*.
(Tho attontion of the* rater la lovitod to the an4Uy,..iis
contained in this uskode of the impossiblo methods by which
the full banking potters* of tho United States* aro to oe
brought into sorviqeAnd of the evidence upon which the
charge of *unfair toms* Li Casod.)
"At proaent Lombard Strt having a giguntio available
capital *" of tho 4ho1e world, sill estend croaita at 3.0, **
tho policy of Gro t Britain o: kuoping hor ourronoy at
,par 1.41 WOli known to evorybody*

Sonator °won know e thfit he here makes a diilful
otatement. Tho pound atrling la not kept at par in neutral

oountries, inducd he knows that i

is uotd at a g:-tor

diacount than the dollar in these markets. Furthermore,
tho atarling ia At a diseount of wuru than $% in Nita York
and would soli very !Allah lowor °Aiere it not for the

asalatanoe that ao lorAlly grant our faithful ally, an
aealatanue of which Senator Owen approves. If *0 withdraw that asistance tLere cmnnot be ay doubt Out that
England'a discount rats would move up oonaiderably a;bovw
our own rate, and c.tollreAohauguir4 many a neLtral oountry
.uld rise at Ltt oxpanou of tba sterling. The further


ia beIiovod that ta liaorion dollar can

$A par only by 6,avInt4 a puolioly aunaipald instituLion

Uiti a duty imposed upon it -- sanat -- it ia believed
wmat this bill will scrve to atlbilize the Adierican dollars'
have baendealt *ith exhaustvl3r in 14 memo, which, I hol,e,
will show convinoinly that we 4,ro not dealing with a
prob1i4m of banking machinery, but 4ith a difficult and extratuely delicate question of governmental policy. There
will be few who will- claim that we did.wrong in sacrificing
our dollars while England and France aere sacrificing her

Whether, aa Senator Owen believea, we went to far id

a point upon which opinions mal honeatly and. fairly differ.
It is a que3tion of def7re,wa hooever coneerning which the
allied governments muat reach an underatulding *ith one notbeç
it is not a problem to be dealt witl by the Federal Reserve



Nur is it a 4uaation of a deftative American banking
waohiLary NiItiona banks ward late in establishing themselves In world markdta, bec,mes it is only four years ago
th4t Congress tins giveA them the r.oqers to dovolop forolgn
b4nting on 4 modern basis. Our bankin7 mlichinery la devaloping

rt idly aud at an ancrocedented rate, even thou 7h progress
would havd bean still fl,ator had Con4reas ',oteod more proaptly
U,QA tha amandmdnts urgea from time to time by the Board.

The ,-;roatest laner to the growth of Amcrio*n bunking llta
in ti,* threat of unnecessary and Ur:Azure ox2eriments of
Governmontal interfordnos. We praise unia wish to emulate
E.Liaaridla banking system

but et forget that it attained its

world potit;ioL because commaret and banking were i;oraitte

develop free and untrullad by unnecessary and epitotul
Govbrnment intrferance. NoboAy belltves mord sinotar,oly
Ulan I in aciv;riv:qtrIl
awl regulation, Cut Only wnars
It 14 neodsxy Ald where It le net actuated by motives of
venom or vanity or other personal $U tIY8 or rojuAir.lta.

Reguilon must :-et cripple, it aust promote.

Lake Louise, September 1, 1918.


In following iVhator 04G04 sipeooh** in the Senatt


014 hotrings, it i*.ne4eJary to Audy
'Ana Ar4ry
xfuUy4 iny of hi ailletIrtin
nd say be aoo..Ood without htaltation,
upQn ti a foundation
f aollJ fuota 41 proft.. to. 4rii.tot ,Aatt Aantiatio -truoturta


a4stie the woric:e

11a render it A.fficultfor ,4vars train
ed mind tr4 diaoovr tht weAk and fleroua jpota, u*rootor, -40 4r0
Ltg with a man of ix,re4t intallloo and we h.,tre o follow him

olo4roly in his ox049Anta And methodA if undttriNt*th tho OAMOU1.411 (ileatly to r000gni*e the r4.411,1 14.0t4
thor.I man.
'oagin tv quoting a 1546640 fro_- tho Snatorla

t. hertng nad givin, the leaoriptiOn of

the '=.4U4440

of the doulinc of the dollar itio;:gi,,Tiet7 in wrutrAl

ttat ri th, 11:i.44t
tocl partld Alth gold,
moat of th4t wne what had pAaaoc
th UnftdStatto prir
on gt.
li4ot Saptembr, 4.1d it ,xaa the. ombArgo which wad plaoetdflosint
..fot tLAt tne g,A.d was
out of thie oountry htAvily that 4u*Ad ti onUargo to .NIt put on
;if oour, osutand*d oreitw to Or::,;4t 3rit4n, iv.raokt
117114 CAMirMAA:

It mma atat4d

eAtt:ht of 15,000,000,000. ainizaArU1 17,
nrsiut oursolve3 ,0:.tor to thz:

':-,-7'omd our own folvorable h41,htl

Tbat ia tho thiq
Ioa in 1Jwarinc the k 2*.io.7kn

lw:ornation,41 luatntii aro
and th,z

to the . allijerante th31 they



M44) sa,.3tW4On




All the4e ntutrn1 nations ottoomo 'cuying from


vid or orlit*




muat bo :ArtINTmi

or oom-:
*L:1,1,14 We have got to aattlit the forldl
,tr*il, who -1 *hipping Epovo g4ciis out thr:11 t2i4y-,c4atv
t. to arati*fy t13141 'litho: with oommolltio, xith gold


.4ad orAiita at prArnt 41rd pr,;kirile,
ioh wu b:Avy:t Laing w iii the moans by
to Ntr %nd to ktor it At par, mid It 14 a -blob
4. ci.-A I 111,1 thia oommittos Gan nolvs and 4hioh
t *1 aolv4, clumis It soots our otle


esanAter fl%

I.z,ught tho aoaoy wnipb
for the pro4uot4 of our on
oountry - nwIltion4 of az I'411.,,i,t Atli' true

to t

llias saa to bi; spent

elz; V141 la not true.Atart:!.'4 out

The Otatraans

that theory And thought xo oould ,:Arry it out,

t the.

of that was that Ort
Of droll% to our V4210u4 411i14, Agid
burin on a huge fooala ft1 t;
that .the Stitieb poluad
down, :1,n4 the ellono,un
from neutrale, found

utrals 4t it



1.neting large amountel
of theAo a4tione et,;ais
T44 ffelt of thetwa:4
hog= to go down
down af44


that Great ar1ta,in4 bying. heavily
t t cit*as not. 'tyuitag fres tbv

t tu 610 - 4 pound 6.trling that ultinat,;i,

ly Nould
in gol44
That x., -,4,411.t.A in G.EaAt Orit.An malting A ev.,at urvnt apA4001
tto Unitd CI:Ato4 t,Q ..auxTort the 'it:yawl ste*ilegi And

-a Ooze V;:i the kravpit of thd p.und at:rrling4 ahal A* *bon
uilvr from the traaaury
depArtent of tio V.01.:41 GGw:Irt
.;i1 tho Tadtiv, rupee
wbwh to
protot ti.
- A V r: 41.0 vt4ir thig to
ba,oacil4o In tbia
war 44 .2.111 ge:At
WI want to
Great nr1t4n AA fAr 43 we pouoitly 2ain.



td toth-r.

Or,At laritain borrows '...rartt U4 tAi0u4/1,.:10 of nillionA t*
oommon tvie ,.%:x4.1
kItt PolJ
to thill
Amczie4n thinking otAamon4

But tharo 14 1, line. Shish the QamwAtit. will AiJoolvr 44
rrooeln in the stuty. of this ptolem,
:our oontrlizutiOn4r Val; purpout should 4o v14,tpad, ao tt.i 4t will not
furnihing Aor,4 for rAtter purp04*$ 144A vitnniag tho Aar.
7V *ant to coqfino our ,Avanoise to tho purpoae in which. 4:3
atit go boyon4 thl cAl1 of a fAithful
..,11y to do our

In 044 A4X. -----

The atlatfV4411 It 14 o.mItehat diffisult vlth tan toforw.:.-

o,% bond to d!yt...rcie Iaot hos that illont4 la bAtiog employ-

ft:a i .,:t4noa Wt oa
attention *A4 o4lod tp it th:tt Britl4h ea;Atal I. 'ouyiag up the int4rnationAl ItarobAntila mar1n.3,
tho Aserisanio; British sa4pit41 firvinalo
sugar oror of 44ba, idl,lreao the anite of the Unit.NIStis
ougnt to 11:14V fin,knoed the ..4.ugar orop4 of Out*, ..,"14 did not.
So, if oux funds Allon $1r Unding f4: tba purpowe of 0-Arr1ing QA tt3 sar
irOiratlyr 4mplo161 for cotsneroiA operttione 4th,a
rogard to that, ;1 it 1.4 4 4ti.ation if t40
ought not to fecuard, QtA: U4M.
%:/xttenixilly whil
4t111 prtrg, our Nil laity .14 fA,t1t.11 11y. loAti ,t,r the




T. 11 it.

3. 1114toir Sairclt

Ti we went augur QC am4thing ciao
bav tcJ' fin4noa

for our a01400, will 3ot tivg Ocya.,1-4nt

it in aurae me, ?
Z %to 4>0 finahool4
Th Ch4A0mant
Rho,t I.. ,* ratarrind. to 444 t4,t fin:,neing
here, whioh la
f Skit 44bon attgAr



would aeam nAtural Cut% twr
ntala soul4 finanut th4 ivug4r 4r010 01 CC;b4,

halua the .41L47.Ar crop fina.no4A from Lon-Lion and
muro funda for th,1
414.3 Loq,:ion °all 014 u

Att awl the Britizh. Puna 4ra
tha 44r
fox tz:do prf.lifit-mAing oweritroial purpompa.
4,4Aion arloaa th4o that 1 think we ougtt to. ooAtoldor.
abut it myzali, twaauao it m4y bo
I ..3 not 1.-ry

;Irtiy *ithin Cvl'propriatioa of the firltia blatica to
It t to
&rd. in KY illAgiits 1, tM; ratty. ynAtwfor rt.t
from thapta noutral ac:uAvrloa

4.w; to orrow- i t
ia 11Q4a4W1
th4 gov4rAmnt 44 f4r 44 t4At /4 1::1.4tiW,b71,0, it 'eine;
Att (1r'La, az
thAt a Gliornmnt
mAticy4 tanclot borrow dir&ogirrom NorAuy or 3.K.a 4n velthout
Norway ana Spe,t1-n.

but tho loAna, if


violating thir nutr4lity,

t bo
th,A cpAttemplatA by t
oorporatiOn uot, ioh i.uthoris.4v1 the bohda Of
trma of foroizn
th* 7vr Finanua OarporAtAbn t
aoquirod by American
omr-ranoy, ao th4t thoao bonds,

sada in 4 4imi1ia
bunko. truat


or priv4t* witiaena, t44

In neutral oountriali And. 'in that. :gilay a4r1, aa
Aipmont uotil after %hp w:44.


You will *14411 that tho l4at IIrty loan proItiod

m4i4 p.4,ala La tarma
alao th4t tht aharty honA *ntlgtit
of tiv4 our:co:Ivy of-fralgh tho aame
that private indivitwAas, tzuot Oompanil$4,
to hautrAl
%howls bonla 34y sill tnoaa
ing tto44
1.04 in ia 4.4315k4g1C f4r oom.,4.o4lleak wtloh it la :ilrod

to pureb4he1 Qr for tht 04pia of platting ortalta in title

loutral .outttria04, until 4't- Ir 4114 44.t.
In order to OVQS0.0. 1,:::;0 amount Awl to neutral nountrUxao Nitilob la the- bawA4 of th dlomount cfthc American
that pouu4 et,t1.1$41,,it ia laaantial th
i.ollar 44 well
my opinion A.ther tk-A ahip gold or to trant4f4rurolta to
*ale of Aziwmi at Kriglioh wocuri
thew, o.,Juntrins
QAdiAd in th*It foraign
tita, or 'WI* plaolng
tha rat*
f.,-4 the F,.. rtA. of tba wzqr,


indiffearenco att,tz.la6nte 4n4 oTeconoe hiu of p,,..rt3

other in ehe.rging by ;mina, publio the pervert t4 and
iwouo, the bfog to procec.:0 Sdn4tor remedy, the
az#0144 la pur44,::, to 4:v: #v of a,2:4 Ii th4 Ame
same the 4t 4A414txtitottD th,t 14/ pr000414 ts 4-;J11,17
fairly 4 here etvinc Affor ,014 to i. It :?affice
noutrttle. to 17,00aLi Of cAlo 3,nd from iAirJhaAeu ir
of entr4 concerted 4nti aoro,eciontiflo A by proOlelA
the of aelutlon two iroucte tio
for neceesAry


be mly

it f'r


of lAeation tho





lo:xic of Iliad fli*that
OhO4fli Al by A,bout
brought be n tudjuatmont
hows 115.ter atomise
We *broad, OVI-ait4 4eouring by ',lief
4,14urint; of method
propcoed a, And - other, th4 on noutrele Om with 'Ind 414a
one the on thomoolvea with overnments 4111414 the 13
th4t - Iroblemt the ,ith 444.1 to lfftetuAlly ft* orAar in
ding Antt3L. to ,U,Wei4 to havo -411 th4t pstise o ti


10114r T,.1 of 414,30nf

the of

of tlIneloo tho 4t*.tlng o4eita

oite4ro4ltion perftly




Aar tto of 4tres4
AcOompilahAd comrsgrac,3eu3f113.1y trAnefe4a er*ilte theAe
whiot by prIvAte, An.:1 public 4eoncy1 44vory of employment




principle A
dopt Amid no I6ellovo 4hic1
in vrictplee the 4.1v(aving J100
1,,,.pf..1r thinXcr1,.,!trnt I
countried4 ItqA1Ag:
satiefectory b4 would *41ch ceovrity the 41;;Ive


44:4 of duti on the prt c.of thcw1 In ohrge ol the
V. R. 31.4tem 4nd greed


past of the New York
-Banke 44 raponaible for thL 41,11 and seeking in conas'Aggnod romelial 44110A on ;bees linos.
Thees chargeeJk1

40 Obviously unfair 414 ro4i011.asked shy w,o tako thom aoriou,Ay at all

loue that 4e might
dignify them ny 4 oloeer analiela 4m,li reply I Thro
14 4ufficient evidence, hereever, tAet Senatoro xrc
owor at this tiviw that thoy oanaot devote a close study
to iatriatta , sootione of tnie Aert .4nd there i4
that Sentor 011040.4 paraigtent campaign may brinv; numArous convst;i to hie ranks Unices tto bunblc 14. prlekeil.
And Elo
dampr eAleta oith rty;.erd to tht pu1,11,J

and the preas. Harptrul loglitiou has o,

n peon, the
r44ult of lethargy on t441 3,r1 of those who knew cettoz.

LA uo roospitulting the Senator's bill
of complaint:
esated; I.) V'iAt tt0; American jollar
:acid at 4 aub4t4ntia4 lieeount in neutral cauntrice;
4.) that oondition of things could kome been 4,
voided if the FieraiR.L$ervl Bo-,,rd had inaiated 4pon
opening brielchee of Fory.1
4rve n4nte. in foreip
onuhtrime; ds) tilat t)- F4derel Res-4rve ban4s had boas
Unwilling to o:i4in t1e4o tir-Jriches, and 4.) that while


the Board hadalkod for prowl: to foroe *haze rod3ra1



n.k3 to orin wuoh brAnchaw,

ha4 retoelved

euoh or from Congroaa, it h.1 been roA.aa in ita

dutiew in not forini; tb Y3r

Reaervu bJak4 to open.

414;11 br4n414416, $0 that th, t Fodaril Itlaerv* bimUo had

boon wii1t

to opon tbilme branohais beftuao they 40Z0

",,I.nk4, who
un,AQr the influe, of the Vow York
,.),n4 who, )
, igt a profit d *ring in frign1;Aohang
pocketing th largo crofita arioing from th,, w4veaeive
,promium of these foreign oaohant:ez; that 7.) both the
Importer Aid exportox ,lero lowing milliono through the
ditsoount of the dollar in Ta4utrAl county/0w; 8.) that
the b4.pkill in tho intrior hJA no direct foreign oAohngo

oonn:Jtion, th4t they auffrA thereby anti. thi; in orlor
to proto:A them, and tia prOJtt.buaineau men, the
1Gc.cX1 Rearvo ?,)Jalkii ought to :A;.1t AA

Aring houaow

:for all for,Agn teln3aotionw; ;;.) tAat if ti
jone or ware done in 'hu future no ,ubat.ztial fu ada of

t'lw Federal Rearve banks would be involved budo l foreign 4.4.-44;0
there A*4 A oollpllte concentration eij
tromeaoRe,i42TO. 414.nkJ, tbf,.
traYwaotiono In tiw
ti4na would offaat on tol.her and tt th(ao4 ti do114r
bo kept Alia Jameroial par* at ,).11 timea;



tha BAnk of Xneland prat (ated the Brittlat pound oterling

Britiab intereata; 1I.) mat bankaro aould not t4
ou,,Ito,itho of tho

.dortd tho

Rxonaage Ilvak on ,moloo-aat of %twit *elfish intoreet

illtA Of V14W, A?al thAt 11:at:',1and did 11Q1. fox 1144t. :4410.

oon, perxit Any banter TiO AO% L4 A air o%or of the 11Ank

of Ingland, but only ev;rohanto;

ltal a6onay octal oura tho

tnat thorelore a



tloat only A gaverA-



be '4;44,,4fir Oxioili
so* 400 much of
ukio -111 of oomplaiat ourv11T04 tho ngAzings

1.) That tht Amexioan 4ollas oollo at 4 onootantial
Alount In n,lutr,1 oounti'te


onotIdod ;A.4 a regrAt4bl4

2o) That thio condition of %hinge could-nave Oman
:41vidtv4 if the r440eal E64:APV0. Board had inaioted upon


i of rediral Ptuodrvu banka in foreign
Atoll froly 44111,1. It hae generally been
aulutior °wan, that Ow aimessat
is not caused by our own debit trade balances)




o tho f44t th4t

a Q01340,A$W.A) of/poiicy Adoptediy tn. teapaotiva goVern
41AW*4 the ot,aling :4;1 franc exchangto are niegged* at Nies

zii.tthItt thio definiU relation having harm 40tabliabr.
a tho dollar axanAng-4 ;.:1a)

Cude 6. 11,a to romain in

an4 trAno ex-




in neutrad countries; that :incilnd 3314 Franol being heavy
puron,tso,ra of gooAs in h4utre1 oountrile ,und tutimg unabil

to it,uititte their iibts by sportina ae.uilmleat in
in gold, hAv4 inourrod heavy debit
that the United at-Atez
'0414L0,44 In neutral couasrlas



ol,aniajoU.r orl-Alte from titt to time to !:,nglAnd

haa nbi 41ti parmittect taset tea oonntrisJ
to Iliuldalu their CICAU in nostr41 countrism by Arasing
on their Kokw Irrk. credits AO to offor the doll4r in these

neutral veuntries lawn to ilopro4mtely the priee Laval
(lidtrgtin,::.4 Cy th.t Itted rIlation4hAp astaoliahed through
opeggiage of


4. ,,ag4.4 in 111.


7as H4lanceJ t%4.6 to '0u. settled by the allits wnount
to hundreds of milliona of doliaLJ a year, *ton imagining
that Fed4r41 Rum:via ban4s 0 opening br::Inchea in nutr:a
ootra%ritm oouId ktv4 limintted %he Alaeount of the aollar
in nQutral asuatilige, %he *mato" lat ussume tnerefore
IL att F411ra1 ft;tv)rv* ' ,.)anlks would have beizn

in those foreign counties .4.0unt4i that in ofa pro:ition of the war ulight lnvolv4 in the

like a Ilion 4oliaza 07 140$3* IL L to be 4


twit thd 14,a does aot vi:46t


'Alth any Juoh post to ao.Ax4ot ios loans la. ZorAgt,

As 4 w,ttar of 1,Aet, %ha Feaeral Reserve BA314

i;,:2r to 'Jpon *Jr.aohes. They may establish *aoncies



s correspossants*, wi4s very clear restrieted functions,
the most important of stitch is to purchase and sell *commercial bills of exchange (or _oceptanoes) arisin- out
of oommercisl transactions barring at least two signatures."
The Chairman of the Banking and Currence Committee of
the Senate appears to ignore that the Federal Reserve
banks today have no poser to open branches and have no

ser to borrow, and, that therefore, they had no power
to do the very thing he reproaches them for having left undone.

That the Federal Reserve banks had been unwilling
to open these branches, and (4) tsat the Board had asked for

poser to foroe these Federal Reserve sanks to open such
branches, but, hsving received such power from Congress, had

been resisa in its duties in not forcing the Federal Reserve
banks to open such branch.
A3 alreadT itated, the Board would not force the Federal
serve banks to open branches because Federal Reserve banks
-.I no power to open branches, but in the Board's record

there sill not be found a single instance Where the Board
xested to the FeSeral R-.Jerve tanks to establish forsign

Aes or corraspondents and where the Federal R serve Banks
ned to do so. The Board asked for poser to enforce the

dishment of ssestio br,nches, for which, in some cases)
.al Rssarve banks had not shown sufficisnt enthusiasm, but


as to thc forel4p rtions, the amemdmeht W40 Ategested
',Alt/ for th(;: r.lason th4t the 3o3,rd desird to securc power
for Fel neiv:Ive banko to open reciprocal Accounts:- thAs
origilva 1a4 having provided only that thl) Federal RAserve
banks could open accounts in foreiqn countries, Cut did not
the reral Re$40VVd n'.16 on Vizir pt oguici
to foreinPli**,n1 correpozAant44, "furtheropen
moret W 3o4rA 7itchel t- h4ve

rr to allot itlf

these foreign acconts utnoaFet the savl feeral Res4ve
bar,e, permitting one le!4mk to 4ot for

.14 under the direo-

tion of the goard; anti power to dIrtot the tatliehmt of
noi-oe w4e furthrmore coneicred de1r13.10
tht2e foreign
-;.mie the ae-rd, In col:lunation
':.. 400',U30 that wco:.41
with the Secretary of t 11, :lta.,ray, to intf:rt into nleotiatio6s with foreign govdrnmente w thout te nece4aity of

. epandent, for the compl.etion of such negotio.3',
upon the arprv,.1 of one or .A.1 7oler11 !loser's bank6. Thi..
power hes proved very uaeful in r44.4% dsalingts .c4ith allied

and noutx.41 countrio. It ow;ht to tit rciteratA, however,
tere4 shown
.4th all wphasio, th. at
ndatul W;aQrve bank any disinolln.,tio to Act .rol,tly upon
_uggostion,J ol the Bo,rd conorning to fax414hmeat of
foreign :kincies or rA.ationa.

Indeed thu Board *rote on January 4, 1j17, to the
Federhl ratv..lrva Nk of Now York, Inviting it to 4,.et IL
'touch with the Bank of Spain, thu Bane° de 14 Naolon of
Buenos Ayres Ind *ith tl'Ae Bank of horw4y, risticns havini;
already bnen established *ith the Bank of En7land Ban4us
de France, Bank of Italy, rAnic of J14pan, the Natitaal B4nk
of the Phil/LT:Tines 411d, ttie Bank of the Netherlands. The
New York bank promFtly took uc tbed nagoiations.


in thd 0434 of the Bank or Sdalt, Lhay did not mat3rialisa,
because the Bank of Spain did not dhow any inolinati:m to
aet aa 4gont for the rederal reserve b4n1 of.New York.
rAltions have thus been establianod with the &nige
of flglanl, Frep.noe, Italy, Jaki;an,P
Arusntine and Bolivia (furthor negotiations beini:; e411146
at this time), 'here has net pict bk;ou any 0004410/1 4Q fax

for fersijn ex,Ja4L4o dealings, the trans4ot1ons betwon the
Federal raarve hank a.nti their agencies having berl'ined
to oar i;:Arking gold or tlaintin golci baiz,.nces for one uhother,
so 44 Le avoid snipping it 4oroas the 000an.
Mother or zlot the Federal rc4serve aju onoula enter
the field of fordin exohange 444 f,rsuontly dizousse41 by
the Board, both Ilth the Tedersi reserve banks 4.rid t4e itavisory
Counoil. The oonolusions reaohod were invariably ih the noga
tAlv ru4sene lox
titre. It takes no exprt irAold4s te

.a finding. In buying ste eng, eraree, lira or rubles,
the Federal reserve banks would have ineurrod a serious risk
and their policy in this respeot hes bean vindivatee by
subeeeuent eventa; for if they hal entered the field
they would have lost millions of doliars. The diaatetrous
decline of the Rulkle /x change is a mutter of general knowledge
and if today the Federal reserve banks kept a large portfolio
of Pritieb bills, which in the United Stataa eave leolined
least of all allied exeeanges, and if for one reesen or

another (or, maybe, as a oorsequence of Senator Owenss
eampaign) the British end United Stateu Treasury should deoide
to discontinue the speggingu of eterling exchange, the
Federel reserve barks, in that case, mi-ht be exposed to a
very aevere lose.. This 'pegging' of exchae. e no doubt
involved hundrede of millions of dollars, for which the
Treesury ha e drawn upon the credits opened by us here.
would, therofore,eneve involved suns far beyord -cheat available to Federal reserve banks for that purpose to deal effec-

tively with thia exchange problem. Without neglecting all
dictates of prudence they codld roe have invested ie foreign

beyond a reaeonable amount, and such conservative limits
under preaent conditicne would soon have been reached


fluotuations of
any poeeibility of stayine; the trend of the
exchanges. Trdeed, had the reguletion of foreign

( 2 4)

been left to the Federal reaerve oan'ela and not to the
respeotive Treamuriae, with their power to uell untold
billions of government bonds, the ultimate oonsequenoe nould
hAve bean a draatio fall of the atarling exehmnge shich would
hr e eoeurred after the Federel reeerve bal-Jce eould leave had
inveeteA 401T.0 fifty or even one hundred milliore or trio.r: in
ferei,m 011ie. Federal reeerve eane would thuo have incurred

a serioua leee on that inveatatent and el the eame time they
mber banks in
would have undermieed the confidenee of t
the reacly availability and 14oper uee of their reeerve mondy.
The phenumelal groeth of the Federal Reeerve Syetem, both in
memberehtp. and scope, and its efferts to accumulate ita lArge
preeent gold holdings would hwto been thwarted.

It muet bt! noted, however, that in buying these exohun.7ee Federal rowirve bunko euld have protected only the
exchnee cf eounrie whore the dollar atanda at a ,:remium.
The ex.ehanes efsoountriee wtere tbe dellar aells at a
dieovunt °Quid net 'ave been adjuated by buyin7 exchllz:e, but
only by borrowing.

From the above it on readily be eeen how unwise, imr:roper

anl futile it would have been for Fe4eral reeerve bane to
If, however, ehe Federal
Reserve Board and the Federll reuerve banks had. reached the
oonolusion that any ceod ooull result from actively en7A.ging
enter the forairm e;Wlan:.,c1 field.


in forn exchan

operaOions, Ay would ilavo done ao.

It le a slanderous misrepresanctio:_. of facts to say that
the Fecierl resorve -flunk of Now York waa unwilling to go

into the foreign excharwe field or to open forein branohos,
be:laid:so the interests of the i. 44A York banks and bankers *era
a.dverle to suoh u step, the alleged reaaon being thLt it
would have interfered Aith tho large profits whicL
.ere making in foreign exoliaage.
The expert foreign exonrAngo dealara o.ppearizi;.? before tho

Committeo i:ostifiaa that normal y

'61,143 ooliveLAtion in

,the field of foreignexo'J.dne is so kaan arvi the i:largin on
yrnioh this isusioes le being done is 30 narrow that a ersat
many of the firma that in years gone by had engaged in foreign
exoho3va trarsaotios have abandoned that field. today. It
.should be a matter of indiMroncz-:: to the 1:roa,.nt fcrf;ign
exchari:a dealers hetur or not one additional large bank
would be e!itliblichaa in crier to buy and soli foreign exchange
the ooapetition could theroby not b000ma keener than it io in
normal tine.
Senator Owen charp:ed that luta to the feet that barks
in A-ic in:tarter had no direct forein relations, a merchant
foroe6, to pay four tiles a commission of i% in order to
finance purchase of t1CO30C. worth of oil in Spain. Thia


ease WR3 cited by the Senator over And OVJT again, but lthn

aoked to substantiate it he refrained from doing so.



Co,7..nittso on Banking and Currency to insist that
FInator Owen

this custtmor and it nia 04



stand, and that the banks chirFed by Sunator On ua having
stile those


also be invited.

I challenge hi


fta d4ngerously baisloading..

If it had beim s plain (Aso of



remittance to Sin, ther..;

uu roaJon on unrth ahy the several

banks and the fserohaht ehould have gone throu:h thaau vh,rius

It la more than


that toativuony xould

elicit tho ft that it sus not n 4uaetion of a purehase ul
hang, but a question of



sty, In ,rder tc finance a pure bear exchenge
speculation. Thls, hoAaver, for the tin. being, can only be
etntad Lr an eaisumrtion. It is intolerable, however, thnt
cf profit4vring should be made by the Chairelat of the

that is


Comaittee on Banking and Currency witpat ht $ feelin In duty
bc,und to :urnish ii Committes oith thu fuil anA reliable
uvidonce in tt4 oast): Whun oLo of to witroasea iLtroaufJou
the draft of a report of a committee of the United. St&toa

to the establish,lent
of a F%Jdern.1 foroin exchange bunk, Sunator °atm insisted that
thio report ehoull not be permited to go into the reoord
unless the writers of the reiort eel% named, and their eiole.tures attushed to t same. SerAtcr 0..$011 rut w.&a per:N(41y
Chamber of Commerce, ihto

jusified in that instance, but he or tainly

should svply kS to

his on stathmenta the ammo rule as he establishes for the
testimony of othere.
It mny ba aorth while to exhmine m little hore olosely
the prooeedinhe in this respect.
On page 190, Senator Owen, in cross lucstioning a
banker from Baltimore, o preed himself:
The Chairman:

Ia it your contention that the banks only
charge one sixteenth of ono vir eent for

Nr. Wilcox:

No; thy chnrhe as tt rule, what they on
get nnd whet It is worth to them I think.
I hahpan to huve heard of a siohle tronaaction where a bank in this oity chnrged one
half o: 1 per cant, another bank in Baltimore
oharhed one if of on pt r cunt, a third
ounk in New York ohared one half of one .hr
cent on the Jame transaction, and a bank in
Enoreelona, Shain, chhrhed ohe h.tIf of
pr chnt on th Witte transaction. In other
words, they oharged two per oent for trhnsferring tha credit which was secured in the
United States by adeouate aeourity.



Yr. Wilcox:

r oannot conceive of hny such think; 4
thai Senator. It might have done it for 1oan1L6
of thht hort,
which is not for transferring of money.
The Chairman:
I only say so on the statem6nt of she man

who haid the money.

Ur. Wilcox:
The Chairman:

I am afi-Ahl he frobably keht Como of it

from you.


I aril confident he did not keep anything

Note how subtle are thee. statements of the Chairman;

his first qhestion la "Is it your contention thht the banks


only charge one-sixtenth of one cer ctAlt for handlin4
nnIkne.4.2,14-tmneu, and In the next pArwraph ha used the.
40rAis urn othor woria, thoy oharea two .ftr lent for trins-

rrin;' 1;h0 aroilit xbiat, 440 secured in te United Stixtes by
a0oTIsto Joourity". If it ha A been sie0y a purohnso of
exchanKe, there mad no need. for *$souringu anythin.r. by

"adequate security". It would Imre been h plaIr :1;rehlise of
ahenge, whieh would have be,m !Aid for In cmeh. But while
this all imprtant diffroroe.t, would not ;.r%:ur to any momnz:r of
the Coelmittse untrained in banking, or to the rrblio at

largo, it la 11,5 cle,:;r tri oan be Mat this wma a 4uostion
; Ur a. simple n1. 174 of exchanKe, h'ut of 40ouring fAn
T,-,.mnce in pesatIle In :':1 In against wt Who probably in514Clulent security. As a matter of faot, latt.r deveioi,ments
in the particular amse whish T hmvs reasons to believe ihe
3,-or haa Int.A.r.,. , .,rovel that the banks were not wlAequately
or as he stated in another speech "involved no risk whatever"
urisOliand that they were threatened with a heavy tome on
these loam 7nutte1 tr.-, a. speculative conorn of insufficient
tir4T*111 and doubtful moral sV.1-notng.

In a simi1sr manner Serator Nen mnde the stcttement
the National City Bank. mad a roflt of $9001000. In
ealinr in South Americt;n exchange. I% is st!nifioant that
hI4 At9Iirfint tV1.4 rado shortly after mr. Coaby, A Vice-President of V.,t1 NAtonal City Bank, hal bon on the stand. *others
of the 00am1i,!tos lre certainly entitIel o wandor why this


atatszent W4* not &ads -.then WV. Coaby aria 11'1304/It. Where; did
tho Senator Ascure this inforation?. 'Chou preeood 61

f ti a Colttov; he "W44 AOt willing to disclose


souroo of inrortion, From tile !nots givon nobody could
th,o 'profit .wis groat or net, boa much money was
it.,Qtad in t)le vanturs, an4 ohdthor it wa4(

a at.iful

spoculetion in South Amori,aktm exoktNngs, aome of *hloh ero

U1cilyfluctwAting, or abother, %a the 7aual. reedier
soull aonolude, It vas en esoashivo dhargo Imds to Aft.1)n
buJAnass yen buyialg South Awvio*n exollugs.

The Uationei
tor,3ii;n br4sehea.

City Betk hes at this tin* s vaat 4,pit424
i% not sore than likuly thAt
QJOr tilt:tee vontur,is
turned out to
profitAble ones Jtkor Opine:boa 10 for LuotaLce
thous osnld in Aa4lis 44r,e thu 44110.d 4f heavy loe:wafi
tmainsos in toroin oountrlea with: oidaly fluotu4ting
eAchwes und ;olitiolly unocrtin 00%litiona le 3 vt,Jry
hezerAolw one.

ii buotilesu In If1J.Ium Caine,
Br%411UY Chile nnd to oirIt4 off vory i.eavy A4C041144
advount of the. ite6vy deoIlrie In theav exohAI.ea, whIch
rcir y4,:tira bani.e

in 00 OA*0 of tho Orient, foil for yotas in oon:i.cotior:
th Arop in tho prloa or alive:.
thf.A 13 ono of thq rt;Asone 4,014 tha iNtUorel fit:oorvo

Board did not 1'0 justified in invooti whet it donel4ored
se 8,forcl raaJrve funds of the Fft4itcrhi fisa4rve Syetea iz bills


biitlArlos in a number of fordign countries share
,Aohangea av.t uh4t4bio.

Se. ator On ought tc
roquadted by hie Committdo to
pz.oduos tho full rota cn ih Ltc bzti. thia 3tattleont 44
to the., operations of the 113tional City Bunk in
oountrleA. Expiate atIti4stonts of this

ousable IL a, oaea wher u 1-,4,rtative of tht bank ha4
cows to ILAAnington pronreq toiVL ll thi$ Autth:ntIO informutton thd Committo, nould bava kiasired.
City Bank
Inert) ht a since be4n a4our:oa frothe Nat'l/ 1 ,At4seut

shoeing the exohsne e,rofita of tho Soltr, AI41!


of the Natiotal City Beni., ihioh ara 14 t011OWS:
Z*Jhaaaw Prol'Ite

Rio do J4nairo



Sall royal°

P1/01404 tyrde


213,C0 ,7,0C


3 ..'"1.-

Car)oas ozohlno Iced

Profits In this ocnraetion


* i3,451.00
it was ithted that the txdhlnqe

,ront of 213,000. shown as having berm made by the Vtlparuiso
nch,wld isr7e1y male up of coitmisaions ehlob t'ao Ne,tional
City Bank WAS Tkb13 to ohqrge in conreetin lith gold shiments
for the Chilenn Oov12ramint. The profit ap;sare th4refore

to have been derived from a foreio government rather than
from Amorioan billet/141W men.

How are the figures to be reconelled with the Selnatorls
.3atement of a profit of 4.1100.00?
It tii iorttnt, h:flvever, to Ket at the real facts in
the case, bet:muse it is on this kind of ovidonce thut Senator
Owen baads hie arguwunt for the nem:salty of u4tablishing hie
Federal Resurv foreign bank. Hm *aye in this connection
(Page 477):
"I am proposing to have a Federal reeerve bank that
:ou14 be able to furnieh falities ut wouldrats and
have a
tIen the bunko engaged in th14 business

potential coapetitor that would fis a fair rte,njust as
Lodon, do
fair rate id fixed in to charges tdaal Atzuriu- unfair
al6ht be
oould not be aub;ebtel
compared with Fnlisb, German or Frunob

to such commerom au

It woe bu observed in this connection that in normal
times thee English, German and French banka in South America
have their corrcepondente in New York and that our AmoriOan
brmached have to compete Aith thuat forei n bank* for tho
busines..J that Amerioan houses would have to offer.
With respect to exchanAv profits made by the NiO York
banks in dealing with Zurok,ean neutrals, Ilenator Owun has
indioated over and over ,wAin that thee banks, or 40t40 of
kit the high premium comandud by

them, areoprong1

neutral exchanFos redound. 40 largely to their benefit that
thuy cannot be expectett 'o raise a hand to bring but more


normal onditions, And that *the banks ohould nat be permitted to t4mpor


exchange pr.:fit

of the banks, not fl;uring i,re.t charged,

our financiAl yardetiok*.

he stales to ba estimatod at 110C,000,000.CO.

haotion he furthr sAi


Aa suggtating

The annual

Iu thio oun-

that the At


Juts2ui 1017, be put into effect so t,t
thu Federal reserve banks these exchangeo could be /woespliahed at 4 minimum coat, without unfair profit to speouCou4reas of

ltoro in Spanish exchatee, and on a sofi,le sufficiant to

our active import-ekort miuiromtnts.*
Upon Senator Owenos reAuest the Board asked all


trnke of New York having forsin.exche departments (seventy
thrt;is in nuMber) to stale the exchat;1, profits mods by them

during the last four

months in. dealing In

European neutrl oountries. In

the Board

alohanges of

its SoictImb4r isAle of -tht

Federal ResQrvo Bulletin,/published the ro4plie4 rcceived,
*blot, showed

thht the seventy three banks together in doul-

lag with Denrark aade profits us ezohan4e %rateactlans of

in dealing

with Norway $10,1G8.77; aau in

dealing' r1.
uf ;86,5:',9.90; Holland of 11C,31C.13;
4113 thut in dealing sith S41tsur1and they loot 41°1461.6o,
aril in dealing with Spain

they lost $51,57e.eo.

It appears,

thog%tfors that, taking the as a ghole, these !iskto York banke

did aat derivo sAcJalive aaluxntas froa the rloo of the
Spanish rate of sxohang0 to 40% prestua, indeed duriN the

period especifiod by Senator Owen they lost.

Senator Owen'a

et'atoment Seems h,rly to be justified by tht abovo figurua.
They prove that tLe 1oss of the United Sttites through the
discount of the dolr- which the Senator arbitrarily ooti..
adtest one million dollars h day- certainly does not
acorue as 4 profit to the Nio York hanks.
The calculated annual rate on total purchases io givn
by the Bulletin as followst
For Sweden,



votes profits C.050, net profit
(...c.2 4,


Switzerland, *
shows losses both for gross .2.nd net.




(In the appendix there will be found 4 reprint from the Federal Reserve Bu.41e1in or
the full report made by the banks)
Tha directors of the Federal Reeervo Bank of Na* York, of
:holt, only one is 4n officer of a NU4 York tuomber bank (4r. every
Woodward, Dircetor of the Hanover bho.tional
..:4IMAIO to resent tne'slandor indulged in by Senator Ohen when

ho statet th4t the Now York dirsotors of tl:o Felerol Reviorve
bank were under the influence of the Now To banks when they
Showed themselves disinclined to lot the Federal Roservo bank
:40 actively into the field of foreign ekohange. The majority
at theso directors ars either busiriess men or they repreeent
atside of Now York. The innuendo ae to tbe 4oubts of
disinterestwinese of the dirsotora of tLe Fed4r4 Roast-re
bAnk of Niw York is amphaeizsd by the st4A.tefkent made over and


janator, that tho bankors are not fit to

,der from a nAtional uneelfish point of vlow the real
needo and, requiroments of tta oountry, and that for that
roason ths Bank of England did not permit any bankor to act
on the Board of the Bank of England. This statomont is as
mis3Mvous as it is misleading. About half of the Board of
the Bank of England consiati of men who, only by a u4isnot4er,
-.4re termed *merchants". 'Umbers of the loading British
privoto bo,nkin firms like Morgans, Borings, Hambroo 4uthe
40 La4ar1s *re direotora of the Bank ofEn:kland. In order
to understand fittl situation *e simply halm to bear in mind
tht tha Amorioan privato bankinp: firms oorreepondin6 to
the Eaglizh hollows, being firma like J. P. Morgan & 0o,Ipany1
PuaboJy & Company,

Kuhn, Loeb & Company,


Jrothars & Company,

Lazari Freres, Goldman Baas & Co m ,,ny
would ba termed qf,4arohants" in Enland. Theau Britioh 0
ohants" are the vorr firms that negotiate foroign loan in
England, nl some are leaders In ths granting of foroipll
erudite. In addition to thr,t, tha Prosident and Tico-Proolosnt
otively of the Hong Kong anj ShanOlai Banking Corporation
atA tho London anA3t1i1ian BnJ re members of to Board

of riraotors of the Bank of England.
Eithor Sonatos Owen is grosA4 ignorant or be is rookiess,
in making assertions which, of necsa4ity1 must ulaload hlo colleagues in the Banking and Currenoy Comolitao .ond %ha country

t large.

tor Owen orafwtas the impression aa if tha American
nits dealim; in foreign exchanu or,:: profiting more baosuoe
some of the neutral exQhangss t1.1 at a 4(4 pr,Axium than If
exchanges Aould be nearer the noraal rung° of prioua. The
casual r,11aFler might easily be misled into thu belief that this
40% gooa Lather into the pocket of the Awerllan banXer, or In

the OftS0 of pesetas, into ths pocket of the &breed SvIniArd,
who ORII buy so many aiore dollar* with hie pesetas. Thu
evileace at tho hiparir, throw a great deal of 110it on this
condition and it clear,to most of to present that
exchange is the ounae4uenoe of other transactions - generally
comaiercial trftvnsavtiono - And not


The 'oanKer does not enjoy a larger profit in dealing
in exchange whether exchange ealla at 40% prallum ur 40% disw

oount, unless he la a suOcessful speculator. Bankin6 statlas * net
thia time indic4te
of the United Sc;ates
result, our 4anka are burrowers in Spain and that, ther,lore,
ae a group, they have no large.balances on shich they would
earn largo profit* by a further rise ih exchange - the f4;uree
givoh Indicate that the rip:eras is the Ghat..
,1 outset Smator Owen proounded t)lo theory that both
Lo laworter and exporter 4ere ioair through thu diseouht of

the dollar in neutral countries. Nie illustration *40 that the
Unitad States fa, while imorting from Spalf, 30,064000. of goods

insurance premium- is naturally larger thaz with the stable exchanges,



(*)7tholikh with heavily fluctuating 'exchanges the margin that is the

and he claimed that the loss on our Spanish business amounts
to S30,000,000. a year "due to the discount of 25% of the dollar
exohang in Spain". The absurdity of such a contention must be

clear to all who followed the hearing, and I do not believe the
Senator himself would continue to maintain this early statement
of his. In a later speech he modified his views As follows:
"As a matter of fact an exporter neither gaine nor loses.
A man who takes a thousand dollars worth of goods from New
Iork to Barcelona gets his I1000. and if he pays the freight
and commiaaions, he geta his freight and commiseion back and
WOO. If he gete three pesetas for a dollar he
sells his pesetas for dollars and gate the dollars back, and
it 00165 out the eame -$100C."
(Gov. Harding's testimony throws a great deal of light on
that phase of the


It is reprinted in the appendix)
The Senator contends that if the Fed. Res. banks had gone

into the foreign exchange business they could have done so without
413, substantial investment of their funds -his idea being that the

.ere fact of their establishing theee agencies would have put them
in position to force every American importer to buy all the foreign
exchange from the Federal Reserve banks, and at t e same time the
exporter would be obliged to sell all his foreign exohanot to the
Federal Reeerve bank-and that these transactions would offset one

another at the Federal Reserve bank, which, therefore, first would
not invest any money; and second- oould thereby fix one price for
the famous scoemercial par of exchange" and maintain it forever
and a day.

That power did the Federal Reserve banks have "under the
of Congress of June 21, 1917" to force every American seller

or buyer of exchane to deal only with them? Senator Owen,
one of the writers of the Federal Reaerve Act, certainly


siv>uld be able to point out the paragraph ahioh voete the
Yodorda Reeorvo hankie with ouch power. Three points
to LAVO been overlooked by tha Senator when hd contendo tht
euoh triloectic;ne ooulel be carried out without a aubetilel
invoetaiont of funda, and that they would..taad to a atAbili
station or fore4:n exehangee: first, thAt Laporte and ex;orto

AO not offeet et eil ti .,. To illuetr:,.te:


art certain

monthe ellen se uaeU LO by vory heavily from England 1
of what 44:'


exported to her, and other

nthe *hen in turn we
aettleu :Jur temporary indebtednose to her when our oros were
ready tob oved. During the Uwe that we bought ,orks LLIA4
eta aold, exohauipe on Er lazA 444 nigh and that acted 44 9,
dtiMUILIO for OW O4.14k6r4 an4 eotton xportere to ,,rtvoi ig 44.iy4nce
bale on Englund ar to borrom in England in order to
oev'rtamm sterling lolms 41 10ffOr exchanoi prious when the
Mi$404 or grain and cotton billa cou1oome into the aarxx.t.
Thousands of indivtduel hazier* Ind shippers thue apfliea

their creAlt to bridge eueh interval.
If on the ae3umption thet import* ane exporte would
always offevt eaoh other, exchange were kept *etabilisedw a% le
defl.nito polat and did not f1utute1 therd mould, not be any
ino4ntiva for 'anybody to draw in advance or to contract for
loans In nether oountry in antioipatior. of ooming billa, ,end
the etweequenos would be that the 1forei44 exohange bank* in
that 0464 would have to provide or buy all the eterling ishioh


would be moired or ofThreJ at a oart:Ain period, bi:ovtusu
.A.d not, it would oetwe to otabilile exchange. In order
to buy this exonanKe, it would have
enjoy tin unliiUted
1w/set/men% poser and in order to provile thin exchange it would
have to h4vs .an unlimited borrowing power, both of whioh Federal
asserve anks 40 not possess. No sin lo bank, ne mater how
larKe 4ould be in .0aillon to randar the oervloo whiOh in
nortual times all the banks of the world combine in riindering,

tor it must be bornti in wird that when, f. i.,


Jachange Is high, not only lo American banks borrow in London, Out .4ha British banlis at ths un,me tiLle build 114.-tiLr
or accumulate dollar acceptances

Aollar bal=osa in tile United Statos/in anticipation of.

jemande or exch,Ings that are bound to come.
With the manking or Olt cotton and graln crop, there

fenlrally oomes to the market an avalanche of export bills,
and to the extent that tllos bills exceed what has been
driAan in advanoe and what win be offset by balances or goods,

thare sill be an exoftes of sterling bills, whioh at times
,A)noaivAbly may aaolnt to hundreds of millions, 4nd which in

that UASO, if thay are the only banks op rating in tbe foreign exolvInge field, tt, Federal Res!,:xva banks would haV


L3 stated before, if during the

t four years


Fodurai Reserve banks had,n


exohanp:e to this

wanner, they would have inve4tad ov,bry cent of the tundu
available for such purchases in buyinK etorling, franOs,
rubles lnd lira, and the very moment they vould have rmched
thoir lt Ind would hNve boan forced to stop, the drop
in thwse axohnn,gat would have ooeurred with oonsequent

to thi! reeloral fivarve hanks.
in ad,Clition, howevor, we must bovIr in mind that control
of foreign skahnftges in VA1 thatild


not regulnte the dollar


it Itas to be


controlled at the aame time in every other country. By
what power on earth eoes the Senator believe that a Federal
Reeerve beak by opening a brenoh in 3arcelona could compel

all Spaniah deelra to buy and sell their dollar exchenge
only through t:ie Federal Reaerve bank? In order to adequately judge the true meaning of euch propoeition, it is
suffici-nt to aek oneself whether or not our American banks
would zubmit to such a plan if the Bank of Spain opened a
br:mch in the United Stietaa ane required/Amerioen banks
ehould not deal amongst each other or deal with eny Spanieh
bank except through the brench of the Bank of Spain. Would
we submit to that?*)The fact then la that first, it all
American exchange traneactions were combined in the Federal

Reserve bank, they would not offset at all times, and eacondly, the mere concentretion of these tren-actione in the
United Stetea, if practieable, would not do the trick, bets:mue
Third, Federel Reeerve banks would heve to be in position to invest
an unlimited amount in foreign exohanges or have the power
and ability to borrow an unlimited amount in foreign countriee
the European marketa would remain uncontrolled.

if any stabilization of exohange le to be brought about.
The range of exchanges t noemelly regulated by the
coet at which balances may b. created by ahipping gold from
*) Tha provision in Sen.Owen's bill that "No bank other than the foreign
exchange bank shall sell dollar acceptances at less than gold par,etoll
would prove futile for the same reason. As 16ng as we could not pet the
same embargo on other allied and neutral countries, they could be dealing
in dollars at a discount developing their exchange market, while ours
would be put out of business.


oountry to tothor. WhQn these normal rolgulators will
zeirlotatiy44_jihofa 411 be no weeelswity for a forlAgn
eaoh,A.n4e I)an)i. in order tp


1 lose on th,z oth4r hand* those nores4 rAgglAloxi_ArA_reiruitAAw
44,_ it to btLY:04,1

Ig17143:_9if VA4 lAdarg flOLSTI. trAlakiL..LQ x114--

Hundrode of xilliona of do1174
in gold Wore boon ohippol, and hunctredla of sillione of 4o11Ass klx,61 Won otreitifs4 by tha tallow in namtral oountris414

Out that hA4 not *wan Aiffielant to reestablish tha gold va
Of waoh4als.

jt zver oo(Jurrodto tha Chal.v An of ttv Sonia.%
ni Curr.:noy Coarlittoo of th,(s Smata that without these fluooxonangs, too soul- loos thl Sisalizing
teatime in fore

fortes of temporary leans anj involotmante omitsty beaks SW:mover
eaohAtge in low - and that, , mon&at other Vann's, 1),AI...we
t-ac, that as. r
teiQd to aonvey when ha pointod
,* onooZ Om aomponsating aAlv4.ntgas of the aisoount of the
tnourh I frankly 40111,44W thAt hie etAtomont, unfortu(*)
nately, Innt it 1f to a 4iffdxent in

.1111111.. 111.




Oa. OP.M .11, MO. OM

It otiL. hwe been fAiren homovor, *WI to Mx.
tontAnd the oowltry A* large if not an abstract
trom Cho OzA York Av,,arieln had. boon introOolood
Into t%,, racnad -cly Senator °wan with thq heldline
-4ufaeturod y that papar
tho Itderol BOAOXV4

41Q.1 WI if th
ar in full had bottn inzted wiC; it, prol-,:r title, via. "




on inalvtlual thou6ht
of th,:; Forigp Tr :44,4 CounaLl 4.ind

th nO viiae for the rederal



MAO lanow

Aa I uncteretand him tho thought he ,lehod ta .Atprea *44
th,t th<:t moat 11011V1OU4 4.44P;At of the oaeo

4a, not tha lia-

count of the dollar, but tha hasxtry Indente,tteaa of tho
aountzice to neutral o0untriao whiah oxuat.a tha flat alliGd exohangoa in neutral oountrieu. If, in
epito of thia ii lob
*a ouli maintain exahange at
.par, thtae apulA not be Amy inventive at 441 for th,t neutral
banker awommtAnmmigimmoowv to make ua 4n7 loam' unload

'we paid. vi.ory exorbitant intareat ratoa. A. it is, .41v6 dieaount of th tollar, fr*no or ,tarling, - all throa atanding togothar ha.0t
ffaut upou neutral aountr3.ak3o firat
or ;,!.,r,moly
the; their chport tv..4inaea illu
on for ehiahhvbawl 3itod at length in Oovrnor
tree ta4timony, .321,11, esoomi,o timulatinc loan4in dollIn

atarlin or frinoa-to allied ountries at tho extraordinctry

S 4t WhiJka thaaa eAohangee can niDa 00 bouGht by the

neutrals. In oth,r aorda, th1 4Loouht Of 1itiexoh.,,hdaa

rric.4 dith tt.3 If olnta of remedy of

,An un4oun4 oondi-

tion ato_gted bydX0.04411/13 lauylo:; in nAttral .lountrize aoti-

binod ,ith an exaaolvo cartAilm-mt of allied eake of goola
to ttwae neutral aoutrioa.
LlenAtor °well traa re oatedly 4it4d L I.W1k
on a moael ior tha rideraI Reaorlir Oyatem, t1i4 improaeion


in keeping -Ow 4trUrL 4 pax and in proviJina BriLai
thi; faollItlos
ooutriee Ath
buoin*ise 0011 in rtota
seulred for tho follaAt davziowent Qi tloir tr,as. Oae
:eaten for thlai woordLig to Senator 0*en, is that Vac
bltng given th-at the Bank *


fdirotore of tho Bank of Zn6lawl aro waelvatta. Viihava
ohowri the flig4ainoee of that argummt, whioh is L...404 on
a 44.4-etutaAnt or 4;14unaarst4n4ing of fs.otes Aa to the
oth4r oontilntion that 14w and haa maint,Anad tht aterling
at pur - 40 4114 oYay repeat that 411146 1, ,Another sorloue
mia-atatoment b444-444# 44 14 woll known, ..41arver the dol..
lax 44114 at a 4.1aeountio law aritieh 4to 1. 7 44114

ersiktor dieeount than tht dollar. It ls true that Znglantl
hu,4 b4on 4-014 to .1114,1av4n har sterling at a 41eount of

oaly 4 approlmataly in 1444 York, but that 14 not duo to
th4 exoslionoe oftthe aervioo rendiurod by the Ltok of Engbut ax.elwivaly sta to tho ekotlionoe of our erodit
an4, to ths etron6fh a the Viatisixl Rxwalvi Syotom, ohlAa

ens.ble4 us to azte.ind to our4.1yf nanoial support amount-

to bIllion4 of dollara,
If tiw United Statea hud not joined_ tho allies, or if
inalatid that not 011,1 aoht of 4.3.1
t). Unit

rittgrntel by our/40 gl:n....1:Axttiibo4 baperat .1x0:41;
for th4 paf1 ut of gooda botkcht, b tha
It is safe to assume
in tha Unitod StAtoe, thiiJ pow; atorlingiviould have 4014

at u aubtantial disoount, no matter to* altoelleat tta


lioe rendored by the Bank of gnelond, unl000 England had bean

abio to reetOlt her purohass of goods in foroiom countrieo to
tho amount that she Gould pay for by her own exports and by hr
loans oontrootod in ouch neutrol oountrios instead of uoing
oredlto in the United Stotea.
Thu Bonk of Enolan has no foroign branches, s000pt ouoh go
.;./A OtAkaa, outablishocl for *ar purpossa.

To t1y knoolodgo tho

only foruign agency that tho Bane of Enoland has over ootsbiiohod
is that in No 'fork with tho Fuooral Roaorvo bank, and this agonoy
4Q fat boa sorved no other purpose than tho mutual oarmark:ing of
gold. Noither the Banque de Franco, nor tho Rolohbonk have
branches in foreign oountriss.
Senator Coon cluima that thus Fedoral Root/rod branohao or
the branohes or soonclos of thin nto F. R. Foroion bank, aro oaaontial for throe purp000s: first, tor providing thu mauhinory oocoo'

oory in ordor to oontract loans and credits in forolon oountrios;
0000nd, to facilitots Amorio7n buoinsso in foreign countrioo; und
third, to koop dollor oxohano it par.
It haa boon indloutod quito fosouertly during oho
hoHring that the foroign Control banko aos aouizting
thuir nutionalo, selling thoir gooAs on long torn
aro:lit in Sooith Amorioa, by takin t!ooir nino oonths,
papor and buyino foroJr oxohongs. It will ho imoroatino- to study tha last onnual reports (before thc
beginning of tho oar) of the Bank of England, Banquo


441 Franos and Roichbant and to atato _from those
authontio dooumonts ho' largo an amount !tooth oad invootod in nine months' papor and folo_ign 000hange.

Tho figuroo aro aa follow:


tho abovo
It *ill b nfrowth 4toA that notthz:; jovox6.
Centra iv.4nka,ut

al aountriea are asolatinG thoir natinal4 in
dovaloping thlir twin-lou3Inteaa nA thAt tho
contral bnka confine th,Aa aotivitias mainly
desaried tiu iviw
to .t41 two funotions
the *took bAnka tht Arena baokiAg whichsnablta
than to firwaos awl aid th4 tral of tho 4ountry.
NO* 1.111.







ithjth4 r

4-!r furt
to 1lAbo.cate
intlrastiN4 to note that
th,o, It n'A.m,, point, bmt it
that It to wocessary to
fixot aont
erelte tnio branah maohinory in ord,r to place blihnk lotms
in foreign oountries, runa uountr to all banking


Th6 1c ion a aontrJ.atad by ZnGland in the
Unitul Ctates 44Z4 110t ncotiatad by the Bank of EnGland
orit rty, Tha Britin Gov4rnmssit sent over to the
United StAtas 40M negotiator*. who entered into pouxparianoe.

housas; vtds

iwArler4 with our important low,;ria,),,n


baoame aJaooited in th


th.a lcAna wore no-

ititlob dAplasaus or oommla4ionairs diz.4atly

with the Government. Govert 446 deelin 4th Gov4rntn,:;ra waro no negotiations in this
want in thxt cum,
oonneotion batwesn the Bank of

servo bank.

ilhon French

:E.:TO-Ind Jana

144A4 were

th4 Tedaral

placed in the Unitad

it 443 not 4 queation of uoing tha agenay of ths
atoait Lyonwilas in 'kw 'fork, but Afvlin ntgotiationa re
ontered into ,4th leading Am6: iaan pr IV AtO banking firM4

and banka in order to placa those loans.



lo orals* to plaise 'DonAs /n

L foroign oountry one needs the confident* of the foreign
people, and th4a* foreign Invautor4 are wood to folios
thAr on Links An1 bant,ors whi141 tha branoh of a for4Agn
bAsik in thesci uoubt,/a oan to:4n only a yury mnull tvamr,
For a foq yoo.rudO4t th4 outbreak of tttk:. war,
sievorAa vary llrgo 10W000 or Amorioin rallroa bomis

kleed in Frust04# but it maa only kossiblt to oarry through
those truwaationa by int.ruutinc, the 14rgo Frenah Stook
banks, shi4h hAve hun4re4a of agenoies all oitc4ti soun..
try a..pabl of diatribating these to the onallest inIt toWL tha.30 FrenohL
n4rAtion to
eatablish theua agena/44 4aLita1llionx of thisada that load


to ttw awrings of tt pop. There Immo Ateeria,v) rrn
eatabliahed ia ?Aria at th(At time but they '61=11 LION howl
insapable of carrying through this prooasis of diatribution

aa aueoe44fully 44 the local Frunah bAnical.

tion ,rmy11 in 411 aoun'aios.


A 1l4ara1 Rrva Ank

or a. r:Ideral Rsaurvo Fortall E;,..cha.nee b4hk


inoapable of plaotno thee:: lowle
in Spain eoul,
4th tiv; :Iptnish invIstor 40 a 11441y setublh*d British
b.,441, In ord4r to oArry trGUheuaL ts4:144otim, 3.4
mt).4 f4 necessary t line up tha Spanish bane told invost.;.
auat hotwaa, And effort, to taip4 etot oan bo made by 4i-


root no4014.tiona without Any Feder41 Reserve bank oaohinsry,
luat As sell as tnis Agitizh And Fronoh Attaindd their reaulto
and in other countries
h-r4AthoutAny brAnah of 04 Bank of 2he,lAnd or thk? Saitlua
as FrAnoos

Senator Owen inoists, hommv,r, that in ordor to aeIl
our ':')onAs abroad it 1., naoossary to h4vo A
of fordign bzuwhea. HU Ao=ls not 1.)-31ime Cut Amarictn

negotiatarz 444 poAlibly AOhiev result in ;;;,,.tiirM411
nor aa it ha4 bean dono by Znaland and Franoe. TM
is is an ab:Arlot from his hoxringl
X r, Arnold* Nil T oan not unAerstmnd gh,xrdin thia
'organization oill to,vzovl: tha maohantos6 Thol have done
it with Argntina ,,nd with India. They 4eu14 havo the sow
telo it :_ith tha othor countrica it t11. :, other couow


tries aro

The ChAirmAnt They i4*e doinc It, jtviA As imaviAtas,
oarryini; on a noot1,4.t,ton. Thy 41.,1 tryinc; to oarry on
negotiation with 04rt4n noutrAls through Mrs ()aka T.
Crosby, a very Ablr.! ;:ari, cu h to only on4
and no has only A limitl 3umber
Hu goes 44 44
o f hours a day, and hi4 ;,vint4 of aontaot 4t4 the DA.n?,1)
thars wtgto 4: onialtion
of Spain 44.Q Irry limit 414
Mr. Czliaby Araby Ivo could us thd Credit Lyonnais
And othr sell-knoqn 4', nu that havo to-Anal-hes in apaini and
ho oould u4a tL,o Jon:qotiona of 411 tilicr vaious 3panp.
1411 OAnka And Aerotki.nts throw la An oreAnisation th,o.t mYuld
reah thast, ha 11111;ht a000wlish very muoh c;r:,atar
ThAt I wlo aorWmplat,tug saz An aktan4ion of th,,;
by whioh to acooaplioh this, V4o,.,1,us we Aro looing About
4a#000,00000 a 44, A000riint:: to t
titAato Ican


throwql our int-rnaan4,1
Snatoz! ?vet Cfc seri lop,,, :ora you o on, Ur. Arnold,

loot you miinandcrstand mo. You Ahd not untirstan4 me aa
Any purpoz-e; not to aid the Allie:J in th,, way
we Ara to ?

Ur. Arnotal Oh, no.

Sonator P.cel And you Ao aot sant to have the holp
t hat we ore giving them withireanT
Ur. Arnold: AbsQlutoly nOI not s.t All. The 4uostion
that ,::om44 to re4: in thla, E. mator Owen, is tia1 In
*at say is Mrs Crosby only on indivilwa? D004
Reserve BoArd of th.! TrAsury Dvartrip'401t tho

r. Crosby, as An individual, tv4s his
Mo. 10,
offtoti, lown iithe Trusaury Departmont in romti,-oing towe
will aa,y0 4114:4 hl has a stonoGrAphor. Ho la
leaVe thors the end of this seek and go to Bpin, And that
MI, Crosby sill be on the
The CWAirmant

*Moo sill probably be closed..11I1 ha sill probly go to
trAnis And on thT! etcamships,

London and than to Paris. EvdntuAlly he *111 1:1nd ,mmesners
17 Europa ana get his trunk unpazkod ani look Around to get
offies or 40Mt place in shioh to tronsaat hia ouainess.
1".01,4b7 la Fiat AtuAted to funotioA perfootly for Lha
prorunnin An international bank or insitgo itYork
of Nes
tions. T14 7.411tbld Trtrat Convany
H umployes in lta foroio brAncala Even thc; intrior
- I suppoao you hA'a eon:A.1 r,,,ble number in your

I 'thought so otw,ht LO haVe An astolish,
lt that 1a1111. Omation. You oAn not oonluot intrntionol
,:osineas throw?: an -ble man trveling About the. of the no
an.A Mr, C:ooby t
%tor hor? oitpable ht
bIost mon so 11ve ia the servios; 4e is * splendid
1 end tvl has A olondil point of slow in this mtter. I
1.4ob1em. He is doing hia
odAerstand perfeotly sell
i6 Aoinc as mtv.% a Any hun :YAng
, and I think.
But yews= not run the First Motional 9snk with
fIr4t thin:7 YOU do, if you Ard zeirunto47;141
a0 CAA:mord

kind, is to firri men oapabl of trIneooting
you runlothAt3 to be dom. That IL yb tthe sAms
President And Managers
FA4rAl-Re)::::,3ohnism of
true 4th reGArd
If you ..gant that to funt,Ition you have
rve foreign bunk..
A to hAvm an organisation with set of offio.ra ii1uot


books, anA individuals to 4nom the noessary Nork °an ;,Al

mr. Arnold: May I ask whAthis oredantila Are? Does
ha go wittmt oradentiAla from Anyone
The UhAirman: No, ho goa 44 tfv: repralutntativ of the.
T.roaNury Doputment.


T toa h

lire Ai110343

of him, h4,Ais hi not?

haa OA: TV (0 A:ntry IYI;pa.r trant

Yoa; AAU you
y Quip rid y0.1. talt:;ht 11.;,vo po,vor

T3- Calkimant

fittad to do th



tbd Ft: t
wmal.:;', not Ept anyewro .olthout kmi-loyoka



't.4r4 0

lirs Arnold: aut it I go with drodant1413 from the Firat




If ou 4.4v,Jo



'or,11471 dop,,,,rtrnont proper,.

hay', to ;4h1bl4 ono If you -vaaltod. to ito
'edi you
any t7ttarnatIcm41 tuAntimis
Tho Sonator know.4 that Mrs 0;.oatiy la not ti 4,o only twi.
in 'Ow TroAsury

4'0%4 ilsA:blia for tha4w f'unationa.


knows that httl haa Alth him in Matopo 4ulto i ursb1 of vory
able r; -Maoism liho risalat hilh in 1114 no,-ptla,t tonal Awl furtherraoro, ho kno*o itn,t whorl Ar 0o;aby Ay/ hia room in

tho Tro,,,.3ury to not .oloaod it hknooto that th.;ro arc
loai.;104t atorotAllose


at,Sf of 41.A.4.; 41.141rta

who 4441.ot thou, _tad who L:lio thoiao no4;otiationa oontluviona

ttontions Tba't3 mator


al of those NOV

thiy haY1 tAk..on htm into thAr ..cfnadano..;,
A it ..ppeara
to MO taoi,ausalaa thxt Sau4tor °won should t11:4-* 4 41i4t4Minit
at tlort, whir-.1 to td1%044 4110 aro Ilot thatlio.r with tho

or c.4:1, is At ion of the Tra.3.aury muat

if 014)tad, to (1 trtm,ntAl to th:; preativfltt

bHttnt,zroata of th-; UnItr:,d 3t ;t.
to not. looklr:
Gov-Irro.,ant. 4.AvoVtL

Uorrov,,ri Ur. Croliby

Th for
nd BriLla
lth Ach otiar in pla.oing

posal thy mo t h,-Indoone 0,,Ar tora


401,1*.k110 on historic;

buildincu 4h1,4h hart boon 43c o,444..44 in


It xmll 4pplait from tha hariag that %ha
Ini. the main service to be rtndersti by a F


Loxnah would conalat in It* pol4ors by paying high


introot on dapoJitat to slitr4ot unt014 williona in An1


foreign oountrieS* Ho hao 1::4n aoauxed by mway witaaaca,
44411,11r1 that that IA a

Apt ton,

I*4 available Poly 4 IlmIto4 a4A)cuat of depoA.ta

tulnito could attract In foreicn countricaw
àtfl Emph4Aec nInit

Aould haraly be

.A)04 to degl th6 putaia dirtot ia forAgn oftatricti,
r. in thi Unitad Statta it ia propsAwl to roatrist thdaii
thAr tranaustiona $0 de41ing with bArik.
:Awe ono
ommot odour. Opoalta in competition oith
bank* oith,
out offcringüe cra41% faciiitia* Ohlh th,ao4 local banks
offers In ordar to filuaaarully compata Nith thee* local
to,.%nka It .gould
nocosaary, thorlfore, for t1a4 Vderal

.w4rvc brA,nchwa to i,';oa h6ad-osr.::r-h,oala into the costmer0

riAlt JuAnisaa in th6i*o forciv pountricas
If, on %ha other hand, It wore t44 plan that thwa 1%4r3 branchas ahould borrow only from banks, it L4 evident
that they could not gA; v,:ry far, bcamate Li order to do that
t;hey would WAve to off ..)r rAca of int4rwot xhich woull be

than tasaa at which the local banka can buy comrcial

In thoat otountrleat und even them

bankinc pru,.


denote ouli die14te the *Ude. of 1imition4. (meta


to loin thinev-oomor this
raticca Roa,:nr, or rorign. :exchange Or u14/1ou241 hereroo,
4tatotrat th,4,


tvIltet,riott2d one, no matter how good ita oreA.t. Ono Aouldi
11.1,;o have to oon,idar that no looal IlAnk woull sant to tio
up a aubotAntial portion of ito funda tor 4ay v.ry Ione tiam4
All of thooe looal fozAgn banko aro depoit bank3 and Nue%

rom4n it U&. 7hy cannot Afford to tie up a lerge pc,roontage of their dopOsita in one yaar ox two yoar tint dopo ito
to W mAde Aith tha radoral branch. If, on ti4 otWr hand,
'thwao ra4er4 bracwhoa would a000pt monrq at high ratt of
intacaot tor 4hert %arm, they eoull be in a ling,,Iiroue pooition, boeauaa if thoaa dopoAita would W tathAri.wn, the
FJdoral bank.* would W flved sith tba 'aortae:Jet problem of
cov4ring exchange, whi(A, in theme oonditiond oould only be
siono 4y zni,pwAto of gel). That, hownver, t th very oon-

dltion that Fo4er4 bankoou1bovot to Avoid, particul rly
rriw on to td o cAtvit I
If th6e tr-neaotione Aro tCD
hundreda of milliono of lollarer truo minimum ne00044r-,, in
()vier to oop u witL t preaerit exec:I:Ingo rcquirmmento. It

le evident, thor,Jora, that th4 Fodavil Roaaria b,nlute by
putting into effoet the plan Senator Owen haw in mind, would
tn maelvee in a, vory dangoroua potion, a poaltion


in which 4J trustees of the !aeon,* eoney of tee United
States, they bevel no right whetavor to elaoe theeeolvee
end one which the Chairman of the Banking end, Currenoy
Coeeittet of the Senate, end ote of the authors of tha
Federal Reeeree Act, sheuld be the at 44411 tO tile: them
to be In.
Bet, oonsidering tho :tatter purely from the point of
vies or sdnotor Owents Federel Reeerve Foreign Exohmuge bank,
it 14 evident that its Orel-whoa for the 44X4 reatioes evuld not
he relied upon to bring about the roeulte deeired by him.
Unfortueately Senator On id very veva but 7e'let he
reelly has in mind. It timee he eeeere to ounedde to
eitneseee that it is not intended thet branches ahould be
opseee, but thet only agenciwo should be ootablised that
la to $ay, foreien banking oonneetionit. If thet be the
040, the forelen banking eoneeotions could render the
suite serviee for the existing American Canto eithout
establishing the eew Governmeet Ionay.
What hee boon steted above eith respeet to depit,
and eftled of seouritiee, may be said with eeuel ferod ith
regard to accept:mos erudite. From tie to tiee Allied
evuntries have secured such ereeits in the United. Stetes
411a in noetral oeuntries. ZIA invariably a large gTOUi of
benks or busleess eoncerne drew on large group of banks
and bankere. The eruAits sert negotiated by QV001.41
0011SO47100, at times under the ausOces of Gevernments or
Centrel bank*, but alweye the elen waa eureeed of oombining
ell the evaileble bankini powere. I do not know of 4 dingle
inatanoe shore a Central bank dree or aoeeeted ltsalf, or
'tried to substitute its own borreeing power for that of the

Oombieed barks of the oountry.
Ae SenatorsOwen gets further along in his heering and
aoquiree futther knowledge, he apeeere to he avmewhat shifting
hie eround. Inate734 of insieting that ee borrow enough In order

to eut back to par tte dollar In al

untries, hs eepere to

be eolifyieg thie firet demand to the preotieehla propoaition of
lonns aufficient f.I., to pay for Porehingle purchases in Spain
leaving, however, the market quotation of .toiler exohange at a
discount for all othor treneaetions. That, hewever, is & vary
different point of vie* from the one expreaaed in the eriginal
fulminetion, whieh eent so Fr as to etete that AI/1100U. *0 put
the dollar back to par everyehore Ws eeuld court the denger of
4 ,eold premium. at home; nothing of Cee sort has happened In
Englend where eimiler exehaeee coceltiens . 141Tia setieted for years,
nor id there the ellehteet reeeon why it ohoulA ooeut alth us,
unleee, indeed, neeeleea alarm be atirred up by rauh etatezerta
end agitations euch as the Senator eaeee hieself guilty of.
Tho further the hearine prooeeds, the more frequently
doee the Sonetor ooneentrete upon the ilea that the beet W4844*
of curing the preeent situation eould appear to be t high rate


of informal to b* paid by tile Fodetal Totoigu Altaksing0
balLoe4, these. rordiol UsIanoes

bamk on forli-11 Aollar
oorvi:)g as futvcrary moano with whioA to pay out ox0e03
fOrta7n plroh,Nsoa.

inlleate. that h do,e not obj,t to 4n; thae. tomka
provi/4 for,zign b2.1e.noes Amid be
pay oix or sv p
lured into the Unite Stataa in that manrxer. lidoenoed414 that
t 13 tiv4t. AA
th..1. will probably mean A loaa but hill ex
the Foreii.:A LcGItd*g 3 4fait. AU be pra.olially
mowy well apont in. the
bank, to Imola thi 1444 *ould
would live no, fault to. find with auuh
ne,tional Intore4t.
10ealea imaurvAt by the GolvernmqAt if that 4ould remedy the.
vv, obould aue4tuAion; bat what. ..koaii;. be the ooneatommoo

seed in lndwina ono ox two billiono of dollara to be depoltd with U4 in thio manner? In the end lt would prove to In a
'dooldod aotrIwint to the Uattld Statue. If ptaeo *ere 03t4bllahati. today tho Unita4 2tati would find 1tlf in the.
pooitlan. We oouI lift the
gold !Juba:0 JOOniar than any othttr ooantry in the world, :am
ovon inlead Li OUX tonwe veould b4 free tO wary oux raw
Jeatt;triaIa to tho varioaw aquntrioa of tho woxli 40 badly in
orw oc t#f. billion3 of doll:ao of
need of thtt..
otrong6ot po,14t:ola

foroi4n balanuou p4yablkB in f;014 woull baoome lawedlAtuly

4144 ,Jul viyabl3 aon out ftin the qold embargo, that imull
be to. hoavy torden for ao to faoe parti:ullrly in view

of tho faot t14t432 timo whim thio happy moment will alum
lihely to hav
v,etly inrexaed and our a1 r4derv vroattage may hQ4vo
ohruat m.triAlly. We soul., then not to in pooltion to
O ur note 144110 and 4opo4t tvAigatione

oomplaoontly f-lo

the withwal of a billion

of gold* And we nut not overlook

loo1lArg. worth

t,o foot that to tat


waOtJH41a:ender the control of one billioo aollare or
moro in olold to rv;utral oountriee which oould toe it fox ths
purpoc of making localto to 3n7
in the lorld (now onemy,
neutral or ally) or of buyinc vole wherever thBy '1ea4e
and pay for thum with th.A gold* or indeed the maltrale mar
atlip taw gold ho '_o And dspo4it it as a old. reserve 440nat
oltoulation lasuodopen'ing the war, - Hnst gold 1-41ano-0*
lt,4t with the 7-J4eral Itaervc.L. , or in other oountriea
ba1uni4 in .the
;;Aate441, at preoent*
to approAleately
. If tiw Govermont
-441t4 to 44ast tiatJe
inortvi.sedIi tto mums"' 111.re4
.oy Senator Owen, it 3013,1.-1 1,44 thopivt banks awl tit:;, Fairoral Heeerve banks, to allow* 14t 144 a4y,
to ')'00tnerttit-:
nutr,41 balances, )ho Tre_auty agroeinIlf.> U. to tha

wn e4uiv4lent in tifttc

of indebtedness oetArtng Inter*eta at Si% to Ko
long Wis th630 lopoite roeutined4 Larger
W atoraoted in thi41 mJaner than y the operation.

b(Ank; the F4dora1 Reserve Fotolvn


Oonition at preont are sueh thAl vs arl forced to In grwa,t Aany crAees; 5.ttimeo shipping' tpla end
tiM84 oontraotini; for .,hort loanz. The ideAl way*
however* for u: to Jolve our problem is to regulate our the noutral uoountries in a more aytmatio way
aa to tree dal 4IC,OA 44 podeiblo the nompary tonname and


oo4a in orlor to furniA the 1v4utr4.1 ,,ouatrio, lith the
u.rtiano thoy would be gla4 to buy from u4 Ind our alio**
I n m4dition we ahould Aim to aAuA our balanoos ithr by
4a1ling our on bonds, with a mkturity
not 1d thart three
y14:aajo awl. in ioing that it sould pay 'Ito to bq 1Nry libaral
and notto hueitato to pay it gewcroua '4%44 of latdroal
that aro roquirad in ordar to appal to t
vt4ator in forA4A marketa, or lara ahould tadauo tlwal neutral oountrlas to
laaak th4ir oan aouritiu), of Aich moat of thom *till
4mounta outstanling in aliiod oontriou

ofthJolla'. sterling and frano 13 44

,4 it iu fox w.4

f).otor for thaso nautr41 aountria4

-1, for 40M1 of thom it iniolvoa
uuah more aorioui4.h-mhipo thAn it do*ito for uz. Itnaginl<, tho

pro4auzo and anxiety to ,41144h our own oountry


Aton ,t thvi beginning of Ow wax, *0 ft.und ourasivaa unale
to ,4hip and at!ll ?ux -otton aroN Tho south AmoriaAn azd
CantrlIzzivan z4v(Iniaioe wh1,A1 hArso to

11 Ow ir cat,

ooppor, fruit, wool, tioffoe, 4kIns or nitratia,
ar6 wart' :ly embarraaood Oy thAr inability to *oll th:Llr

goods 'APue -to thu hoary diwz,ount of allied aAahAngeo.


1- to th lx intereetu 44% g=h *11 our* to find gay* and wane

t o overawe thla ooetruation to thulx t'ado by oatablishing
orualta un 11 41/04 tiro aa 40 ah.A.11 bo abla to ahip them thora4uiged 4wantitius oZ goodu or ,;;o144
The tcAtt non avAllal)le uhould bo tnt to -n a, neutral



o ountrios libth for th.,1,,,of atudying mhat gooda they
requirt now an4
requir alto* ttvz0 ear, of delti4n, wecya
ot mkin g thee* gooaa *x1144014 fox 4.4.-ort purpooea


b 7 ouxtiling hott oon4umption and of negotiating allied
lotna in thrto .;:ottiltrieo, or of. ra-oelling neutr_Ll ouritios
11,14 in -11i4d oountriO4.
That, howeve)r, La no4 4 function whiuh
by th0 F4deral Roeorva
or thi$ r.:1iJx;;.1 Reaerve banka, et
.4 1444rul rOrtian It.oh:taga brInX4 It le & jetoa011 *hi.* nuiit


be hInli:Od by tlo Govrnmnte dlrat, not by &
iw,tit*otions with limit,A poera, Ttw Oovernr..nt
the poker to raetrIct or to cnQorage ilvort4ttion or a4 :'rtam
tion, to aurt411 horn o oonuumption, to oontrlot for foreign
and to commandeer neutrl aeouritieu. The Govrnmant
tlon o4n ov4r3ome attohLffiLttA3 eziot between the
pllOgre themealveo in A41114ting And ouborlinating

thoda eavera nAtionl t%t t

tha puxpoc of 0000)-

11 :=;:lag 4 oom,on and oomprehan4ivu 1:1A-1 of o,


hioh thia oomplex pz:oblom cannot "o- ,olvod.
while he says"The F.R.banks have utterly failed to meet the services exasile Senator OWOD AxXtrili the redo:A.1 Rouervt 3oAr1d1ie

L.glen ateare of the fA t
th,z redoral ateerirc Bn%rd oAnnot 1)0 hold reeponalble for conditiona ehIch tra not unler its

ConcreaA h4.4 .e.1.1von th4 ptvear to m:Intraot for 1ne

and to r,.igulAto k;old exporta trAd oontrol foraian exchAnEoa

to ttw Pr 1t'. And the 1,,,ttor Wls plto,v1 thistle dutti;a in
of th9 tiorataxy of th,1 Treaeury, aome of thuae
funalm boinq exureiaa4 by the FddarJ.1 neJarV03 Dm,.rd And

okorvv bnko aubj
t Ue4-4orarai
Cedrotary of th9 TraaourY,
Offioiaaa of the; Troury haa* aontinuouJIY davotei
t2v4Ar timk$ 4ad mercy t*
',uaotion. Thy h>ve froluantly
conforroc oith tht, Board la thaao ha,43%4X4 4mg. tha 3oar4.

oial AS4 *facers of tsba Fodaral Rauerv bu,huve


froqufmt ooaf',ranoatti 4ith officiulo of thol Tra;h4Auxy.
womorauda. hava boon proparca 4nd aubuitod by InAividual

ol.mors of tht.



comwanUtiono uom thz

No AsatUr hoa Cltuy tho taantJara of th,., 1104o4n4 .k.r4 14nd

no idialtos how laxut


th4 FAax41 1104,a1r4 banks

hiwo undort4kan 41 thi4 11w140 41.1.4t Au WL1411 tu4 thoy hAvo boon

to ta,(4.44 th4 alAltione. Uurlamil Impoabd upon thAt
by tba 74r r13,1.:A44 Oorperatloa. ;to G4plta1 1441444 00T4tt-J4,


iny utica plA*44

on U14A by OA Tra.kaury, Atorh

44 control of k;old and whilvax itvorta, thr, aukarviAlioa of
coraltin ahol;,,A464 rt4naactina, tza i.A.s.4;1416 of clioxtifica
laUabtodnooa J,n4i Liberty Loan bond4, pAritont of ocupens
f 4X th Gov 4rruz,,;at

numrou., ctaar uot Lvit leo, jwill aa
441411 4w141: Lhoyvi'beak aillirw; to aroat an additioltal
(atrAztl.A4tion 'In ardor to 4ot,ivoly oniicul in forolgn caall,Inco
LX4A4ACtiOAA, if that had orLarad aLd cAlnca of bringin6

It, 14 not my int6ntion
tkiorouhly analyst) Senator
taidanta bill aa it atando. Tho edna4or admit4 him.tAf th4t

it lua not boon olacfully

Suffia4 it to aay that

It La imposaiblo to ..t,onoeiv,) what good purpone oould b4
warred by praotioally aup2.io4tiug tho Y1414ra.:1 114aarvo aya-

tlny ivihg avol:hex dot of L,.:au poaor to 'ow aopiaati=1 and
foredm papmr And to 143i..16 7,4u;r4 floadrw notoa ag4inat

looepteno44 or forelen billa.
to aoor4144to twelvu bank

It 14 liffioui4 ormough
to orlw ay6tom,
it vivuld us

oaaiOlc,, to pu.13ue :any Aiml of a.a 4:14Jtivo ala,;ount polioy
w 1th tvii? ayatoma
notua and doing;
d.i.wount btulf-ao

in coapztitlon with ouo another la, oX oourao, ontixaly 1410011cotvable, The 3enatory4 x4ply 4ou14
tnat t;lo )%d4ral Re.aarva Boturd would °only)l t14 lug( rAaral Aeaorvo Exoh,mge

If that it



0440# 114 1044

th4 imetubaru of Wu; Doard

mo e oompliawteml Utak th,la if the; oontrol x,ataa,i4aa

74x1 Recorve banks, Jut 4oli oan 414 raJohoile
614L, thia plan of putting the A4W bank un44x tha Joarata

aontrol, the Senatorois Wilinmanta thAt thia nax i)4L14 4ould
hAre to
erganiaod 1)40muse th* BO4Z4 la ovezourdehea ansl

t:refor4 ooujd. hot undtIrtkth. taalt?
however, thAl 4hAt ths ;:lana.tor


14 more th11
1_ And 14 JQA4

aort4of 4 divi,led aontrol.

Uatatod 4wlag the hearing
hi4 view fohat bankina la wo 4141.8 a matter that ov4r,
-',Ju,lh,r;aa nun fully underatInds it,

4 aufflaiJnt grlap of tkJ

ti Fi'i1



144 Aul :44uizattonta of

why 114 =sea that 4.:hko4-o 0

Dirvotora ef
forbign ban4 to Oo appointedby t44

Jnt as so bmorohAnts,

of 4CON* 14' to 1,1 Gov,rnor,


Thile'daoh Isoomoa&tions 44 May 414.fol


t1or to foreign banking to YeAlral Neservi,

be made in


a. nomb6's banks and to 411 other banks anA b4niv4s of

.re to bo mac sud;leat xxo tha ordxr0 of the

%,0 AL,.1 in
L Bessrve Ward, tha po4er tit; 1.041.W
lap iureipt oasik.cnocs, ,;to.., could bo okari34 (;)


uontrol. It L orth shila notoirq. that the new
ioot to tail rtollation of the l3o4rd* could, buy z;c3merl-


notes sithout tho endoresmJat of Ja.mber ba.nks,

th,41v Qi., thorAoro, give it larger palate th4n at

th* Irc.tiorLa Riservs bLesiks.

skopaess uonfwion th4t nit,ht


Anyboay o4..n,la

I asa

k to Ait, ho4ever1 aftcx c;ad,ing the testi-

mcaly that I,:;;4nhot 1w11 4m44.3t1y sh4 Gen4tor Owen re4lly

ihtonAa Uhia neejadilral R444rV1 thohangs Bank to



talks about ita inveating in ,foroiKn exehanges

thou 4sain for 44,ya no talks about wintemitional bills*, Inth4t h4 14 aealin with aollu bills, th4t is
A44Y;Ln bAnkorel isooQptanooa rather than roroln eltphs.nas.


4144ti,AV 40..0 t;144:44410n makes it 444,s79 uf oourso, t;.o

please the witnesses

AU4 %0

thoir .xpport.

Some men

Wit0 fopteate larcely in foroi3n okohangs, lik, far inst'Inoes

Max Aay, a:0'A enthusiast/4a in tric thowtt that thi3 now

Reserv. Forsiisn Exohncs aaat 6111 be :roe, or. 64


hop.** AaI bo farcical to buy heavily fart;ign billd in

order to iaatic Taderll R.041VVO not13 40aindt thAn.

It 4auld
thoot Oonalrno that from time to timo ar0 lar0 i*ov4tor4 in foroln exchange - and le
juat aa wall admit



them aru larea awoulo.tare in foreign 4A:change

IA orAd'.t of need to uni4a4 their holliaga upon Ow



But how. oAn

44 z000nolle

,3uci% a plan with Sonator Owenta otatoment tht thc1;77u..1

FotgnXx.ehtv book ,Jpould bi

with which tc attAblah for internation4 billAs tic.Lt i4 to


'4Ay Jonas' acooptawlea dravn in forairA eountrio0,

.dboourit rat* whidh la to effeotively oamata
laritlah diecount rate of 64,
If Cat Forsign Zoo/tango bank høu1i b4eomo



isvedtar in foreign aro:mango it would mean that t that

axtent it mould, baeomot f4ator in turtawr tact14g thd
Lrttt ii
ZAI01, or tto diJeount rate; of all othAr
countrtod whoa*btU4Iwo Aiould lye buying*

If :,.41 wario; goLic

llbrally A44nat dt.rliot ';111-41, w0 ahoull
nlaal do 04: ttst ta Aaaing to ttl; popul.4.rity of aritldh
bilL; la tato vorli m;rkata, What b4ttar laula hixpla to
thrl, f4tr1trw billo than that oa ahoul4 frooly 1,;j1.14 r4.40:41



11;ourve notaa againot them, threby crieling a atleond IlLrombard
3%r,usts in NO4 Tork for tho parrode Of populaxlziag larliAdh
billo 4Ad deaurio. for them tao lowmat poaaibla A/0count
Zitt.4 14 Ito:lat.:1 makdta*



inrodibl that a 6ontliman

of gr. lUes oxparianoo ehould give :molt advios - (0404
1 to (34 of the hearing). It to notastonlainift bowompor.
len taken in ,jonneotion *ithflL othdr atASMOnt thAt the
mare fAot that 4 74doral Rostrvo bo.ak or th,:: propod4d

in 4p4in or would luau, a Atiimont to tho effeet that It

VOC141 Haeerve Foreign IiitotiAnge Bank wotild eatato1i4h 4

iat4n&ld to put tho dollar bulk to pas in that aountry,
dould aot

01.1.4h A glip.ntic

°nod t),In to tumae in


thA peaetae woul

wimilx m4nrwr that

It,AlivAn 11A-

ch4no reee eves .41:14o the United St.ltee md Mt:gland


.nounood thatz plans to muotain it. The difformoo botwoon
tAo t obvious, Italian ontanamso *ma selling at 4
couht in tho United 3ta.tesi exut tbo raostabliaboont of

o4ohango1 thairofore, depolikoi in our willintrome
Ad. ability to buy. If wo arc, willin4 to buy an nnlimit,4

th4 i.bby p1aoin4 an unliviit.44 amount of arldit
th rtJaie.n GovernmInt, Italian eAoh4Ago sari h5 roostablifiboa A% onci-o (oran tholch to tho axtont that wo Aro

4ablis1in4j Ita11 nox.ohAngs 40 are 611.r14-7.; in4re4ed

,ua to the fro ea thA aork towaras tho dvrooiation of
ollar in other 4ouAtries). aut in itho oiiat of pesetas,

ih4re ve oAnnot r...estliah the AolLarby nlyiag p4a4tas,
ro auaroe In the United 3tates awl 4hi3h do not soil
th,i gold pagity
400unt but At a proniamo
only be re-eet4bliehed by

11 r'n1,4vofArd

Aly dollars os to maks loana to u4, it 1*) nothing' dut

fooli4h taAvado to wl.ko Juon a at4td,aonil.
3o matttlr noa 4olily we profewo that we ar0 going

to put tilt,1LXbaok to pea in 3p4n, thepaeota will not
go down In new Ifr)rk unlame wo ean borrow In Spain or arrniTO

fox tUa ohipant oC' a muffielwit amunt of good3 or gold.
143114tori APPWAtutlY# 14 notch to.k,A with thie
reo th4 'sentimental 4ffecto of 4uoh 4 bluff, b,A3auiia
poatodly rJotort4i to it in Nixaaliningil-iiutfroavaegyli witnoaaae
The'SeAtor turth4rmor4 that taw BAnk of Enk;lnd,

uot Banque de FrAnoe and th fieiehahnk U4V been halpinG their

bu4inesa in in forAgn oountriee by opning credit failitios.
nothing of tly kind i4 tha 0M44. Nona of theae 0-Au41
htV3ageno14 in neutrl uountsleigi
fet of tl-L
a hewitir 4imoount th4n our 's.
. .441out two or three of
Mngiand. ?ranee and %/many11,4-1v1
th.Ar largeprivItl banka kl9ti,b114hod iA mo4t Of thee:;z :oreigA

ov4trio04 To illtuitrate, in South Amariou, i1z4haa the
Lcolon n4 RiT3t FLAtit B;int. to London and Braxilian Bank Ind
Brit1:411 3;-rik of South Amorioal and jr. th4 Ori4nt tht Charter4d 13-rik of 1ntia

utr2J. & China. a.nj thir

icilaong And


hai Banking Gorpoxation.
ThOttrman tcAnk3i. b Xcr9 tiv4; outbreak of

bank t. Ohinex



tikAd 'ono

tho Ottt Bzk1tih of.tec tho joint

proprty of v4otio41ly 11tn- importat Gormn atoA tinka
4.nd pr v wt

banking I Lona. Th t

t A-0 Gera,:412 13{341.43 in South

roro4oftting e-aitt 4 diff,:xont Gorman 'Woking grouv. The
t4 'ronoh
F r4neh have oombined in the otetatAiohmnt of ond
b anke in South Az:4:14a 4nd ow; in th., allont;


Thd Credit Lyonnais ani

-Comptoire Nationale have some
branches in for3In countriti. All tavA.t the Bank c!

Relchbank in normal tlaise ure
the DJnius de Prance or
doinT ror V.;436 for,Ar;n banks 14 thn3 they provils a stable
exchAndli Irtti. by their wi1l1rgnes6 to ship gold, and a

stahls filsOcurt rAtO 4us to tLo ztrl banks providing
a reguaar mIlkut for the acoeptanoes of these forsign ban:te.
TLeir acoeptArces aro. frw,Ay bourht, thorlfore, in foreign
oountries. T11804 are the too metIL. functions to b6 sAercieed
by the Federal Reserve 9yetem in connection 15ith foreign

bulking, and in this respect the Fadsral Reser'vw System 14410
done all In its power to facilitate the development et
for,31n banking.

Inde3,a, what American banks h,!tvos done during

they have be:4n 05rmitted to operate
the ahort period
in foret,n countries Is nothing but marvelous. The Aalorloan
iri:the short period that it eliets,
bnkor a

hue created for itelilf

114.ortn,nt po51tion in the world


Tf wo will be able to yrctect or pre6ent gold cosition

we Are onreful to avoid any letups .th3t may weaken the

strength of our proeQnt str,.tegio position, the United St;=vtes
will low tht strorv:eet power in the ?lurid, eo far ao oonoerns
Its Ability of maintaining its gold paritie orun 011.0 pea00'


That ability of beiAg the f1r4t L4 1A,
aown the bars and to let iold o freely lotoreilks It m4y bo
due 14 bouna to civo u4 4 leadlnii poaltion In the world.
ii:ark4tki, no stizvtti how 1(04 tettorarlly tho oUry drop
la o4tab1ia1ied.

/4:4 foreilin countrioa, togott oath the iit14$rili4ii aw /1'4444.

during the "after-the-war period"
Ana lut ua 1.).
thind that/t country
is atrohoet
tn beet aLfor to 1..J4 o,01 14 likely to 4njoy
the /064ut



Qt acoop4und,44.

Fudova Ftea*rv Board hi pubiwho4 in it4 Au,uat
nhaber aoLle

,tbout ne growth of Ario'iz

rj In

foreign uounteits*. We
u,todaY, :LA Lit,a% A4/4 *na Contr41
wad South Awirtaa, North AAerioan banks obioh W4 444 a4toh
Geman bania. In 1,:4,11.nu44,vo
*6ainatJiu 3riU6h, Frenah

the Amarion banker lt ought to be atatod that It 14 not

hia fault If he la ao lute in the field; for until tno


.11a Yoderal Rea4rve Act, it W4,4 Congreao timt don'44d

NaAlonal banka the i:ow,,r to go Into foreign countrlea. Until
t upon thu atatuto book, kmorloll national
that 1
bankA had no right W accept, nor eau 4horo any po441bi1lty
of oroAting a diacount wu.rket aasuring for Al4ur14%/i auck,,ez.anoele

he acoo4aary world proatie. Nor Gan Senator OWtAl 414i14,
he does whenuvr ha deal* wih witno4.4o4 opkuaing iiplien
for a Ter4.1 Re6erve forulol bank- that it AINAii Confirea that


foroA upon nnmillinrr, bulkere thole reforms that now ftve
tho oountry. Ti3 undorlyin thouerta, vis; tha conocntratin

tor l'4orvoo, the oreAtion of 3 dianunt martet and an elastic
note ia3uo blood upon s000ptnoo And oomnroial iver, Art;.
develoal Nnd ur40 by bon'Kor3 ofThttt1fWItea
Itaoptod in lenstor Aldrlohee Ntic::ma.neierve Aso_ tion
plea loaR before Senator Oven 4urrondered to them.
*oil rems,Imbor tho.t, Aher T Nft0 fir3t invited to taaet Son4tor

Ooton in 1P11, at trtineohen the draft of the


Re3crve /tot ono in ocure of pr.oparl.tion by Ur. Claes'
committee, ho WAS very muoh interested in having mo expl.ain

to him fully the eirtary faAtures

of banYerl 7msoytemoos,

ra4iaoount3, 113oount ,Irketn, etc., which at that time r
found wora to0o3 still f;,:tirly novtl to him.
It may be irtreating to print herfl 31do by aide the
T,J6i,00t1ve ptsseres of tho Allrich plan and ti3o TsktorK1


(ro)Lt pare)


National bents
reby AuhQriz35 to
accept drafts or bills of
t4ohatg3 irttmn
having no more than four
r.11,L1c1e to run, protly

oy-aured and erisiwl out of
13r71,1)w%ini.! a
hrsinbefore defined. The
Qf Jut:11 1.13a0:11L,.;46
outstanding shall not ex0: d. 04
and aurplue of the soceptini
bank, kald

Oa aubject

to the restrictions of 400..
ti ori fifty tYm :::.unArgg-1 of

tha Revised Statutes.
Oiction 33:. Tha National
Reerv A,1cecii.o.L may,

whenevyr ita own condition
and the .onJni firci41
Conlitions war.-ant such
ir:taiitment,;7-rehau from
a sUbaoribing bent accept4n0t,a of barks or se,,.ei::tore
of unquc&tioned. financial
ar1ein7 out
of oozmorciel tr,,nsactions
S=h acceptancea oust havy

to run, and must be 'of
charectIr gcnelly known
in the uarkyt it prime bilis.
Ouch ac...7eptancea ahall boar
the indorsement of the subocribin bank ecilin to

elAme, which indoraomt mu3t

be other thlr that cf the

Any mumbor 44nk

accept Jrtifte or billy of
exchange drawn upon lt

not tor. ;,-, C:A:i 41,A months

sight to run, oxolualvu or
(lays of ;,:;rce, Aihich .)7oias
out of trnoactions invoiving
thy 1.;.rtticri or ejortation
odu, or which groe vut of
trntni.ctioLs inVO1V!
domeatiO ehipment of v;k,ods
;rvi:Lc.0 ui1irdocumynts

conveying or aocuring title
aro att4ohec, at the time of

acceptance by a. sarehouss
ript or other such (Wowiintconveying or oaokiritlg

A,tio covringr


ble staples. No 14umbur bank
4h,41 acc4t, iihot,,,c in a
fign or dob4uotio tro.nsaotion, for any

00MLnyll firm or corporation
4munt e4uul at any time
in the .1.vrogate to mory thun
tan rceLtum of Ito 0444 up
and unimpaired capital otock
and oulus unlyos the Wkak
is secured either by tttm.theid
oculAents or by come other
setual meourity growing' out
of thy Jmait) trnoavtion as
the utcoptance luld no '011k
shall accet ouch blilA to an
amount e4ua1 t ny tift4 in
thb v.TrAle to more VhAn
or h4.11: of 114 1)ald up ,:tnd
atock and


Suction 34. The National
Rootrvo Association shall have
posor both et homo ard abroad,

to deal in gold coin or bullion, to mtke lons thoron,

and to contrt or loans
gold.coin or bullion, givinp7
thcreior, alon 1103t$4047y,
aoleptabIe soourity, including
the hyvotheoation

klny of

its holJiws,of Unitod States

Scion 35. The National
R000rvo A400iatiori

hav'T!) power to purohase from

its ou0sorloin
sell, with or roithout its
1,71doreoment, oboc4s or billo
of oxoharoir, arising out of
,q,nj. to

ooinotorol4 tranu4otions tA4

p.115. (a) To Ll in gold

coin and bullion at hone
thereon, oxohane FederAl
Re3ervo notes for
go1,71_ coin, or' old certifi
Osten, and to uontruot for
loos cf -old ooin or
bullion, giving thorofor,
ft;hGn r000esi%ry, eoceptable
soourity, including the
hypothocation of United
States bonds or other saty/ritle4 w!,lon Federal Reaorve banks are authorlood
to hold

or abroad, to &eke 104310

To purolmoo Iron
oomber banks anA to sell,

with or without its inor,611,nt, bills of ex-

ohangs arising out of oos-

*orolql tr.tho:-Iotions,
hereinbefore defined.

herelin!)efore defined partble
in such roroijn oountrias
L5 the Board of Diroctoro
of t:o National Ro4wvs AA40.
avtrMine. These bills of =at have 11,1-t

oding ninoty days,

,,na must bear the 41grature
of two or more responsible

tho it
one 04a1l be thot of,a subsoribing bank.

Boction 36. The National
Reeorve Ao-ooi%t.ion shall hlve
poeor to open and mAintain

boJnang ao.lounts in rorein
countries o.rni to establish
4goncies in fo;:.1.N ou'intrioss for the purpose of
purchasing, selling and

To oetablioll
accounts with othi.,r Ve4oral

p.110 (e)

ros.:)rve banks for s.Aoh4nge
curP)308 fld,9 witn the con-

exchange, and it shnll h.Avo

sent of the Feder,ci Reserve
aocounts in foroi;m count*
tries, vpint corroopow*
dents and establish 40)11.clos in ouch oountrios

ment, tnrou'h ouch oorreaion-

beet for the purpose of
purohusing, selling o.nd ool-

ooleoting foreign bills of
authority to buy and soil,
with or without its iwiorlo-

Board, to on ftno mnintain
whc,rosoovor it awl dooL

(SooOS contid)
dont. or Agoncise, chocka

Or i)rime for bills of
commercial tranactiots,
Autis not
nin::ty tiny* to run, and

bar thu

of too or moru reopon41blo

pale (e) continua

7ioctine tails of eAchanie,
71.01 to buy mnd soli 41th
throwh such oorroapon4ents
or AF;dL014111, bills ot #.
change arising out of actual
which havo not or than
ninety Auys tb run, OA**
01U41,4 of dAye of 4,A4s,
bonr Lh, 61:.nAture

of two or mor; rosponaible
parUos, 41.1, with tho

lent of of the Yedoral Roeorvo

DICA: to cii,:an


banking accounte for eitioh

forn ccrretoondents or


In thia connotion, howevro it way tot

amiss to
rfeir toth.sugestions eade Oy yeelf in u plan 1,ubliwned
it November 4440, entitled *A United Reserve Bank of the
Unitob States", it which, axonist others, tho Zollo*irod;
V. aavoctedit
(4) To buy, at 4 Agoount rt4Ae to be publishiui frow
time to tiiae, paper havinp: no or than ninety Aeys to run,
rw4r, 4 a commorcial lirm on, and accepted by, u on trokA
cock...any or banker, and indoreed by a bunk, trut oomany or
b6.niter. One of those sionatur* shoulJ be tIlut of a
eiember of the benicliw asolOntion. LaAitS ia3 to %WoUrAs of
aooeptimloos admissable frog_ time' to time ;:or discount 4itak the
United Reserve Bank shoule be fixed by the oentrFt1 boar(S.
() To buy bills tot deelded won). titian bilis 'O haggle
Franoe, Germany (and
suon otaor oouttriso 4* welyus
1 maximum maturity of ninety days, to bear one coreroLi.1
ei4;nature, to be x'sn Orarid eocepted by a *oil known
:oreign bankinp: house ana indreed by a isembe.:- of a banking
0o1ation or 4 banker in good standing, The United Rusurifd
BC4Ilk ShOUld have WNW, SO rosell all bills %bat it mi-rht buy
enJ to
all thits neoeesary for their oollootiou.
(6) To ;healtz. builioL, are4 to uottr6iet for udvance*
of bullion, Rivir teurlty therefor nd yil!Iterost
on soon advances.
toore also ocoors a parraph with
IL tLia th-c*,),
refoos to 'OSAkidro'i acootahoes, reudinF ae foliose*
"Thor o rwlitAinig to bo outublisned °to more rte, the
private discount rate, at 40:leh the United Rourve Bank would
take eiAty or oinsty aay bliie, drawn: by oomi:aorCial iirao
on, &nd accepted by a bank, trust o(Akpany Or private bare.trr
und...:r 4). T44 priv.3:to ,iisoount .to ol tUU14614;.
Flow:Irve Bank, would be kept very low in the beginning, for
kurposeot onoouragin shl,or..$ at 4O- 4 'Ana 40.0r464
use the credit of Amorican barks, where now they use foreiKm
brAhil to Ltis Yi.,;.G4 of
oredit. Shito of oofie
ootton from 07aveston to Boston *re no* usually fiteed by
long draft* on EuriA)*. Under this plan mach bankinj


actions *ill be turned over to the United States. Blils will


be drawn on Amoridln banks &no, bankcra, iLdtJW1. of oh Lonaen,
FAris or Berlin, and

instead of bein ithahoad
may gr,ually bsoome the finunoero of others. by others, AS
will this increase our tr:vie, but not imo:rtant ofonly
onoa we establish the modern bankine bill in the United St,:,as,
its use will grow Ind our banks sill reap tha trtasundous
aavant4g4 of beir7 able to invest their deposit money it,

assets upon ,which they (1 luickly realise
abroad. Ai the use of thia modern paver at nor4o 4h4 will
increases, SQ
th finanoial safety of tha

the business comzuniy*.
AnA ono paragraph on the purohnse of foreign
*There ratminn to be oonsiqared on (Aor1.1, field of
..hetivity for tho United Reserve Bank; that is, Ito privilee
Jf buyinF ftraiTn blIls havitv r4(.t .)re th:Ln Litity dii44; to
run. This posr is neees3417 for
afford the UtItod. Reserve Bank anobvious reasons. It wc..uld
idle funds in times wIlon the managazzent should to acti:4
1 policy of witOrA'ainF, fund4i for 11.3 in the Unite;I upon
r' --Alm enable the bank to scumulate an int.ratI reivIrve; for.11(91 bils
'or%illblo for tho
40 ,i)f Arawin oi1 trots foreign oountries, uad thoy ulso
as a i:vans for waring off elthdvtwsas of gold.*
In aldinT here these quotatiova, I am not moved Ly &ay
dei,lire to 7)stItl1sh a claim of priority of authorship (aa to

that p111,1111 rocorlE, wil tell their own story), bet I
cite them sicr,ly in orler to deprive of itu for oi; tha
egument, -usel Oit'ar"mt4 over wain by 8onator Owen

in crlor

a silence or weaken the woiht of the tes.A.m(Jny of cAltno3.ies
unflvormble to his plan- that the bfalkers aru stupid und
unfit of taking a widl view of the problets of the -country,
and that Oom-ress,
the will of tht bankers, had
dviad F.nd tmrnse

: the country.

Nhlah finally proved to be the 4.3..,.ving
it 04R bar:kers that sugesteci the undriyidei

thoughts of tha present reserve $ysteM. A vast majority
of bankers declared thertselves in favor ot the prineiples
which formai the hA414 of the Aldrich klan, and thu Federal
Reserve Systs substatialil adopted those priaolpies. It
changs1, lts fort. of , v.plisAtion. in Its earlier for the
Fedsrl Rea,srve Act contained sot7o provins which orcatad

apowhniiilon in the sleds of the banking octunity with
respect to ortain f6zaturse in, the
and. mainly the
roar Oat the desire of decentralising might go too far
to permit affeetive operation. Me powgr vested in the
Pederml Reserve. Board. sus dselgrant to counteract this
decentralisation. if 1e Ise h4 now proven to be u

benefit to the oountry, I believe se ' vay all that sows
the Credit is due to the manner in sLich it 48.0 '0$44.



latorsa, and enlarged by nany subee4uent amdnetmente prepared
by tha Board. Without Wiese the 'Weis would have proven

defective and unztble to meet the prJa4ut situation in the
satisfactory way niia fully appreciated by the entire country.
The contributions =gado by those enacting the rederal
Reserve At ars wany, Ind their work an the *hole Owe most
creAitable and beneficial. Thu fact What thu 4ct could bit
permed at 411 *as one of the .0'..rsatost achievements of
strategy anl oft4incity. It 4%14 A. formidable task, briiiiAntiy
4ccomplished, hot
la enf:,,ir for the Senator to Cony A.14
standing IA court to V'ae eriiciame of bookers for tne mere


reason that at 4C:a:4 time they ware opposed to oortain featuree

of the Federal Rerve Aot.
The plan for the National Reserve Aw3ociation, eubmiLted
by the Monetary Commiseion in 1911 contained in section 49, the
folloming provision:
"49. The organization of banke to conduct bustresein
forei7n countries and in the dependencies of the Unitua States
shall be authorized. The etook of such banks may be held by
national banks, but the aggregate of etioh stock held by any
one bank ahall not excod 20 percent of the oapital of that bank.
The bank ao organized may have an office in the United
States, but shall not receve any depoeite in tho Units a States
nor oompete with national spanks for aomeetic business. beiL done
in foreign countries or in the dependenoies of the United States".
Against the proteets of the banks, thie clause was omitted
from the Federal Reserve Act, and the Federal Reeerve'Reard never
ceased urging the granting of this power, becaueu inetead of giving a monopoly of the foreign branch operation to a few very
strong banks, it would enable many small banks 'to club together"
in going into foreign loans. Am anendment to the F. R. Act as
finally secured in 1917 givina substantially this power to national
banks, and the grantinq of thie power has been availed of in the
(mast of the Mercatile Bank of the Aaericaa, the American Foreign

Trade Bank (whoa e stock is now held by more than 40 natiei-1 banks)
and others now in organization. It is apparent, therefore, that
the bankere of Ow" country foresaw the neeeeeity of providing for
Clio trade in, foreign countries; as early ae 1910 and 1911, while
this poser was actually granted only one year ago by a Senate whose

financial legiulation sae under the control of a Committee
of which SJnator Owen himself was the Chairman. In that

sowootion, It may 100 stated that for yoare tto Federal
aosarve Board hae urged both hmins to grant a federal
ohartor to banks organised for tha purposo of oi,orating
ir foreign countrios. Bueh aawadment had Oeen iroproa and
4ubaitte4 in detail on auvurxi 000aelns, but Congroaso so
fro., had not found it Y:od.iible to pa da tho nood3sary
.at.iofl1 30 thk4, at prouent, ato on4rteris Aftvo to be

dought bynks organising far tho purpose of operatii g. in
foroin oountrius, ohle tha prvstigo of a fu4er%1 ohArtar
14 still boin donis4 to them.

It is riot falro ther fore, to say that thu

Yoderta Reserve

Board has boon so busy that it hes not boon able to dovots
4,ny tiLle to thd4e 4iluations0 It is a fact that the Boara has
urged over and. over again' tho enlArgomont of povers to bo
graniusd national, banko in order to butter oolOblish ao4.144ir

aoseptarioaa anti Aria n orolits in foreign oountried.


143o1f, ohilo insBouth Agtorioa, made tho rounds *Ath
L,Alore established it Rio de Janoiro and Buenos Aires,
Uruguay and
and in/Chils, urging tho bunko in those uountriou to ovAi4.
themddlvod Of Amorion w000ptan000. Upon my r.turn IM440
4. full roport to the BoarA and ad:l.resood ooszeroial
end b ktt tt ths puroda ol pointing out to them tho
thuird in uoinc As4riaan
tunity and this obligation which

amooptenos omilts, and Iprovrale4 upon the St/tato to onlarge
aea*ptand posers. of adabor bank4 00 b.,4 to authorise tnoa to

designed to furnIsh dollar
otrtAin transectiorts
acv)ept for
therefore, for
countries. Is it proper,
.exchAto in
to create
and Currency Colitto
thq Cha1re4n of tha Banking
thii Board
Sewtla :and In the Country as it
a fooling in Vie


if he alone, as

duties, and as
had been r.:3..miss ip it
Committee of the Ssrolts,
Banking and Curruncl
Mairaan of ti.e

sentinel duty in order to protect
*44 standing or.,
1 fosl
of tN1 United. States. Ho srlys;
finAnclal intersets
srious rusponsi-.
this Committee uith 4 most
*4 are chari7ed in
Comrittsa on


if t4o
Who is there to attend. to this

and Currently !loud not

give it $Atentiott" The Federal

of the Banking
ask sibether the Chairwol
Redcml Board could sell
hi e moat ioraful
Commlttee Aid alisays give
and Currency
to Amenents urged by the.Board?.
4 tention

only, and years of ear at that,
Thnie and one half yours
Pants of the
estbliehment of forelfli
have 'hooey open Cro the
There la no other country thftt during
United State*.
strides A4 the Unitad St4tes.
period, h,x.o made ouch
short a
that the Irltioh acceptance
Senator .0ren criticizes
It must
rn.tes tor dollar scooptancso.
loser then.the
that is an anomaly, but ote that l*
be freely mlaivted that
than by us.
to be cursd by our ally tether

rt ia

our allied, Ate hAv
In orler to
bsliev4 that
It 1;5 ntrAcnable 0
rise urrrecadilmtttd 4UMS.
preeent progrfim of rld.sinR
financt, ourselv*.e 4A1

oe coull crry out our


$76(40CC4t. ovory two *-440 by tho sale of
indebteUess At a rIte loser than tho one
WI ()flared
by the United States, that is 4p
rwto., *4 would run

If la should 'lower uur

rtek r loeinx the ocootratit of the
thousands of umIll oanks, all of whom
auot cooperate in

ordst to MAR* our flnanolal progra a success.
nen tho
OeiQrnment borros;$ for 0 days at 4
our ao4pt4noss
'Al It a rtIts orawh loser that thut, or tha banks sould 4Annot

to inv% in tbeas aCeeptanees,

the, burden ol (A.IrryiN
the:0e acooptamoso moula
bo thrown entirely upon the Federal
Roserva bank*.

Federal Reserve banks' inveatzants,
;ha other Lane,
hwie risen since the ;i&r began fr(m 4450,00C,000.
s4te1y t3,0040::C4OCO., alwi. it is iA
the itteroot of the
United Statas that theee
not increase any
r., %ban they hair*, evocl:use wore rapid
Krowth a,,oLno 4
oorreopoading re:iuotion 14 tAIT re, ov,. poser
hnd a oorre...
a4ort,lingly rapid 4AFAAai0A cot ora(lit, with
the incidental
inflation. On tbe other hand, -oubt Li4.4
been 41.4wres3ed by
aany 44 ta whether it appear4 so7r4nte4 that,
whi.te ga aro
fi.%anolng En;:isnd to oo iArus
eAtent, har diaoount riLtos

should be lilt against cure at

at a tiao when Ihtgli.nd
brrcse iA tha United StMt44 on it treasury notes
4; 4

rate in excess o.t



for American bank balai,oas

interests at the of 4%. It :rust be akimittod, however,
that England ra%kas this effort of keeping 4or discount rat*
so low pridstrily for the purpose of placing hur treasury
?iiiiett a corraspondirwly moderato rata. Be th4t 44 it
may, it can rci.*Aily be Otitil from tbe above that it would
h4ro1y to fair to blew, the FadorU Reserve Board for a
condition which is plainly ir,eyond its control and one which
cFl.n only be adjusted by ta4 understanding botwoun the two

govornments conctrned. (See foetnote)
Senmtor Owen 41)-i:stars to think thftt his revieral fitidUrV6

foreign bank would ho ccipable of romudying this anovsly. It
was brcught out during the heAring that Laasmuch as the
r43dsral Reserve forollen bank could harA4 ()cunt uiTAm largo

depoeits frotacuotomers and b3ais, it Would be, in fact,

rostricted jr Its op


to tho amount paid La by tho

Soma Aritnos suxosted, therefore, that it mi4ht

144U6it OWM bonds and sesuro larger funds thereby. The
Senator evidently Axe Much impresstod by thi4 foolish sug4esti;in

Note: It hi been OgueutaA thet British banks might
soli increase thoir sitooptau ocatmiti4tons so we to At
least squal.lse the coot of British and Alsorican acaptanee
crsdite. English financial writers appotr to think U1A4
inothd of the Prilich bents mNking soma adjustment or
this sort, the United Stto il ht recluou money rtes by
artifici31 moans aril thJreby create theJ basis for cheapor
borrowing. by the United States govranent. her so beia
in itind that, hosevv:r, in orJr to raiso tho amounts
necosi:iary to fimules ourselves and our Allies, so re,uire


(footnote continued) *11 the eaviri.4e of our poople, and
*him litz'oensidur that, in orcer to be able to bul tiAte 11440o
SFirleiya of life, these peoy)* have to pay toios the prides
they ussU to, we perceive Way it i.e. neceseltry net tio ascreass
1..1u rtiturns from their woringli, but retbor to increase the
If we 1041U; mak, bOncioi1àht. ,10 s6IvinK ulikes :,o1110
bo able to invdott in s,t an unduly low interest r.tturn,
0011*Svalori00 MU4% bo neavy investaents in those aonds
loans on H)ride, by ;,01-2., It has also

been Stited that the volume of British acceptances has been so materially reduced -while ours has incrased-that this scarcity has created
a natural demand and lower rate offered b investin7 British banks.

it r000tedly
on he roverts to it,
to subseuent eitnesess. Zr this comical/on the Senator
expresses the conolusic,n thl-At the Federal Reserv foreift
l' ank would be able to attract, se ho cuts it, all the member
because from

-nkes liquid cheap 21 money, sad ho has 4 vision of seeing

kal a this 2%wInay invested by the banksiz these bonus.
How aro thorns botlm to be selourad? he is asked. By the
bills thwt the Federal Reserve for,A.irr bank will buy'. Res
sumose that thin for,Agn ekehange bank woulA sell five
hundred million dollars of bond*. Moss bonds would have to
sold in ,.w.opetition with the Govrnosent to tbe member t,anks.
Could. the member banks afford to invest their '4% liquid motley%
IL these bonds'? Why o:hould they? If those banks have s.ny
4 money, they hblve. it only for tlie reason that they 'fint

linst at ahy time if their own
funds which thoy ean
Aorto,nas require it. Thes4 foreign exehantro bonds would conatitutt) nothinp sloe but 4 4oc u of bank funr.40, just apa muoh

a3 intituanto in any othr bond,. It would be mah 0414r
for theaa banks to invyat t1tr funds in 00-.4ay oyrtifiouto
of irdLbtednooJ than in the4o honde, Nnti I fNil to it two
wuld, i* going to t41 t4)1e to
.SonlAtor aoan, reith hi o
find and Attrv't idle 2% monty for inveotont
In ally different 44y thLn. Olo Goirrnz,ont tvhon

it offoro its

A oolotlritiaa.
DuL,1-al4:ov,z OUT plan

ooLitton of tho voo

Nero orriod into ofoot, Lho
Wink would


ao follows:

17,;1 n triannoya, it Atxtii
threo yitmr bond*, lot vw aay, on a 54 or 0 b,,IeL,

It vault Pwrit

thyo a,4,0$iuLi or bivct IlL kturl641
initt tho pr000wis
ItiptutiC04, or DritiAh att:rling billy :IA 5i%. IL otlbr

orda, *4 would org4nioo

bo.nk which woull otk-,rt out 00.0

the obj4ot of looing mono.
It oounda almoat 114iV4 to awl z6t %hut tho stook uf
Olio hunk ahould firot bo offorad to the 0.141io. fur invaet-

ont. Traity4 a law whoul4 4o posood simultuuouoly tVo4.;ing Any inh000nt p.rivato invi:4tor froa, ouboaribil,6 to auoll
4oTiroo, b tbe Unito4
et1V. rio on4 invotor Gould,


States. re' this pleM wtro oarrted otlt arid if these beads
wer aold na the Senator hall in zird, 44 wyoll then ha,*
tbs anocalous condition that the FoclunA Re4erso foreign
bank would bu In the aarkst buying bcnkers asoeptances at
31%, because it is one or lienutor Owenos AAA to bring
the A. ,arioan 4.13count rsis Aeon to tha BrItiAh rt4 and the conaeluenos, as alrealy mentioned, would be that the
Federal Rocrire hanks and mil the privstte banka of the country
ou1t00%40 to buy acceptances while the acoptlince market
would be controlled entirely by the Federal Raservu fonsiga
b%nk. In Oho:7 words, tho Yelloral Reaerve banks 4ou1d be

shorn of ono of thetr most imortnt powers, MO4t vital
(How the IJer.A1
for th protection of thc systole.
Recarve Bord. 7.1.:roving for reder1.1 Resorve


rt) an aooeptane r:Lti,D of 4411; when aittiag in oontrol of the

F orcif.;-n Exchange bank shou14,approve a rt, or 36L emethinc that I havo not been able to fathom0

It will b. not

that the bill, as first dran, deprives

:ntiraly the Fedral Reserve banks of Vv.:ft power to invest in
orinexohange said to establt3h foreign :ilk:notes or ,7;orreswithin oonservativs limits
ondents . In normal times F.A:toral Reserve banks/ahould buy
gold countries

time when those axe low and when fundu axe
too abundant in the United States,*

That would enable the Fed.1 Reserve banks to counterAlt unhealthy oxp4nston and at the 04M0 time provide a safety
alve in Out exchanges ahould turn and demands for gold
e =de by foreif:n countries. Tht:z policy of proteotion
Amid b taken out of the ha ,s of the Federza Reserve banks

,nd would be turned over to the group of lava,. running the
edTal Reserve Foreign Exchange

It la hard to 440 how the financial system of the
United States , oull.'profit by dividing those functions.


,.7:41111. croAe a systam fairly impossible of operation.

It doe not appear practicable to go fully into an
malysto of th several measures of relt1 that the Senator
.ucts at raniom aa capable of solving the difficulties
ef the problems involved.
If th.. FAeroa RaiVd Board - whom upon .nother
occasion the Senator ha been pleased to t,:lrro sa aubordtm,Aa
bureau o th TreuryN - had th power,4 to dictate conditions


to all neutral and alliee countriee, some of the schemes urged
by the Senator could be put into affect. But the Senator is likely te
knows from his confidential talk, with officials lin charge
that they are wide awake to the emergnoies of the case. He cannot
ignorethat they are day and night atruggling with the problem;
that hie suggeations are not nee to theme men; that conetant
efforts are being made on these lines but thet only by patient
negotiations both eith neutrals and allies and .moving with
the greetest diaoretion can reaults be secured. They cen be
achieved only by mutual voluntery agreements. What good, in

these cireumetnces, can this public agitation do? How can
th public interest be served by advertising, and grossly
exagerating, the harm that comas to the United Statea by the
diecount of the dollar, inetead of howing that the dieadventage
of the conditions to be remedied iz affecting both parties to
th negotiation? Hae he found the Treasury or the State Department cloeed and uneilline; to lie ten to auggestions other
than the made through the megaphone of public proceedinga?
The Senator ruehea in *where aggels fear to tread", and I do

not think that it ie to the beat intereet of the country to
follow him in publicly discussing all of hie auggestions.
Ac atated before, most of them are not original thoughts. To
illuetrate, the Senator advocates the eatabliehmnt of an int-rnational gold clearing fund aa one of the remedies to deal
with the present aituation. The Senator aays:

*T he eetabliehnont of A old XIAnd in Wawtinten by the

z r 44rfl R06 cir. bnka for a',,pxoting their balanoee with
ooh other by bookkeeping rIntried, irwt4,z1, of by aotaAl trAnAfp:01A pu.:)11.,J 000lsorty Anit tr,-v 3
fer of :p24ip atu
thinc on b: done with Int,.1rnotion),I 4Aohones by 1.41:Lh-


Auld ttlui Unitcd, 3t.Ato4 to AKrve$ a. likt.; purp000.

It moy 1v5 inetructivo for th reA,or to learn that
alit-a:In: by book rtry 4e4J not provided for it tho Oven.-Gloes
tht It wA4 deNoloped by
.clorl 114:rv Aot,
niAlor 741,41144 to in3t:vot,

thfiirildtzrka ReitOrlro '30Srd th.
Upon it Li rommv.,nd-ktion

,awn4rs,nt Ifti.44 044 ati prc;tvi

wohin ry. 4thout whic.11 th

t n*t 4iLJ 444:

OK) wro:rath:mt ocAx I no, h .or 4 b6 on kl,.6criwi %hr. ough isithout

4/14. 4 2Aenaoe to the banku and the country,

It may be of

inttrest to not., thot the int rtati,anol 4o4rin6 fund
the Senator v,tnturloi to wAqgo;A to the Doozd o4 4 neo
tiioAk;ht, h AO heat ortjmi.trod two yezao Ago by a mombvx of
!And a Gow.:;rner or a udo;rAl Boo4ry' 11.1.nk, A full

, 5,11'.:3)1


r0 ISUIMittoil by '014 A43-lo:41

141agetes, o ho I'au; one, to till: intmrrhational 11141.Comion at tio oon;tiarano45 at Iluano4 Ape* in April lin lad gia

crt tr y Iva 4inon been T:krepa,red And' oubmitt ...A to 11.10.1th
OfEntra. Mario kn countrioa. V%Ain ohartioteriatio of

tz tzfts iu that th,4 are plustal to irWitUie 40 mazy
powere 44 triaJtoes tit 1f to of them, or even more* oent to


with eeeh other, the ri.i
neutral custodians of the fund Ivuld have toe respected. ithout e oh treaties, intarnational old clear-

ance funds, in my opinion, could not be considered safe.
e to procee,-, on these
fforts are constnntly hei
;:eriator -am ith e femilisr of assumed authority la down the lam that there
internetio .al 1,7 old clearinp fund.e r7hould
pnd the.- they would render annr,ceseary "the a penre of
frolf *biome As in the future for all countries", be
earriey coal to7e,7eaeqes 7.k.,-,ut he i poilinar t e eoal*
safe doe he believe or banks would feel if the
3titsirtfl .eteerve Tianksi ,7'oldhad een in flinole '7,rut
th Russia a d if it were no...-. in the hands of the
holscheviki? Should we ha o left unlitt.ited ou.nts

of our gold 1.nnovt neutral countries in *Europe, which,
conceivable at least, mi. t have joined the caltral
olã clek:tring
po ere or been overrun by the

fund, if nroperly or enised and sal aNarded,- hid) is
rater of years of nao:t patient ne,otiation - may remove the ne a si t..)? of many ,3.o1d ohipasn.te, it ie

atemiont to ray, or to ez,pect, that
.3ePeary all .!.old hipments*


will render uri-

Control towi ks Munever



'permit more than a cer to in Ty...race toes of tleal

r total

:old holdings .r,o melon outeide of teir own country

;1... oreover not ell coun trios will be sat enotteh

be oneiderod oropeeo custodians in spite oi




NOTE: ibetract from the report of the .:erica* proup
of the International
ommieeion, uroino tea este,-

liihment of intereotional gold oleo_ bale fondle,

Federal :....eeerve '',oard had evolvod. jorin


preceeOing year a soeLtem of effectiue a settlement of
dobts one the ',vele* Fedora ,:aserve eaoes of the
united .',tatsis by moons of' a gold :settlement fad, anu
the United States embert ttecroteci to ovolve a plan
by whice, in a oimilar mariner, :old eettleteente could
take place be eon notioes ;it out the neceesity of
moving gold from one country to another, subetitoting
therefor a efe rocedure of ".e1 transfer of ownership.
In iteelf, this problem ,000ld not offer any ereA
difficulty* It ',Avoid mean, so a roster of feet, no more
thairi one bankearomarkine eold for mothor; that is to
sae, one bane holding gold for the credit and
c o sal of onother 'hank upon te e dietinc t eoreement

tbet the creditor bunk my sok for the !out due it
in actoal
bed not in any ccter currency or credit
The difficul'e! of the proelete, eo ever, lies in t e fset
that if this ;old fund Is
leroe enoleolc Kasten..
tially to ovoid the shipment :Jf old it esuld ve t
embrace au ,v V. of very ',tree 'proportione, and insomuch


ill probably ''.eve to be 17194
for account
ove rra ram t s or oovernment bonke, 'lob
will -have to treat thee gold, held in forelon courrice
part of their own
reservo wool:rise hiob they
have s o e taedine t17,eir on circulatiOn, It le emcee sore that the title to al GI. the ownership of the ,gold
forel courrieo ie plo coct eoTond ate
these do- ,7)osito of :1!!old


of dispute or of eeleure. It had of neoessite to he
con idered that in caee of intorruotion of friendly
rilatione be 000en any two natiorot the ;Fold beloiv tug.
to one could not bo rotted by o other, and it oss,
ther ef ore , felt that the prereou.isi to of tee creation
of suah
Itiod would . -.:.tere to be international aoreements, not only by two, but by reveral eoveromento,
which, all. toeether, would constitue theoselves the
trustee of tee fulei. bU in onso of hoatilitlao


between t o, the reme..ining trustees would still act
6 privileFes could not be
affected 'oy an irAerruction of friendly relations between
of the contra() tin,- rtioi.
Not only in the case of abnormal interrvaptions of
tic trul -tee,. , whose riFhts

ocean trowportation., but a1t:-3) in the C 6.19C of normal
conditions it this oleerence fund prove O eavery
usoful instrument. It is f'io doubt a greet reste to
inoura co on :-old which
.period travels one way and hIc ,wirth the return flow

of trade, r 111 have to travel beck ovvr the same route
the!, it hatr, cow. It is no doubt a -rest wai:le that fo- sign gold tha t en te re forst gn aeon tries in this manner
toilet, in a s7reat :nano' caFes, be melted down and r000lni.
oreover, he loss of interest or-used
transit is a very heavy item.
eCOTIOMIC waste mi..rh
be avoided by the oreati.or of the proposed

once fond."


:o contemplate this clearance plan
as inoufficientl,,:: tan4hie fore t,:o oorve in to near
iu ture aL a basis of t.-,enator Owen' s plan of vin all
forei in. exchanges k't bill zed through Facie ral Reeervo
banks, or throu.7<h the ./ederal foreign bank, i01. out the
necessity of ever elapOn) -old, is a dream rothor
a V ou,ht to be CAW 1011104 considered ea apt to offer

relief in the present emer.'sncy.
is could go on almost indefinitely ith our analysis of 1e cOnSequeness that. 7would follow the establishmont of a bank as o.Ytlined by the Senator, but I think
we have .:, one ftr enough in order to show the wooknees

and impossibilities of ,he plan. In order to sum it up,
e might say that nothin4 has been &U2 In the her':rirr
that would .provo that th machinery oropeoed by the


tonator would rr6y the obvious defects of the proethe sr lexts, the remediet.
m teltuatione A- 'ion,,rut be found nnd applied Iv the "lovernent; by the
overnment u Ing its cre6ite; b7 the "'overnmerit directing the use and flow of oods from and into our corn.
try; and by the :om-ernment sondin ouch mrtn a- student
or negotiators f. rek; be capable of ne;:foAsting loans,
;4eurl ties, or 'vvine the way for preeent
placing U.
the ,-sr lavtr, feral f7:.n
uad future trades


exchange trw ac ti one vnd f ore in aloha:12Fe f ao 11 i ties

can be provided b7 eny bEnk now c>istent or
contemplated by the ent tar, cannot remedy .te



ence -ill be reetored,

preen % facilitiet p those of the Federal a'averve tanks
end banks of the 'inited rtates will prove to be fairly
adequeto to handle the aloban 7a problem. As o on. Isr
we oan lift tbe O16.umbro the eyAlen7e question wil1.
solve it elf. must, hosvr, vid lo do unything

that mi.ght delay the possibility of our liftin! the
gold mbargo at the earliest pe sible momcnt.
Othin hes beer sholm to prove that in aormel

times the banks of the :Tnit d tates do not pro, i de
foreign eohen ftcilL td es at most mods:at mare-in- of
profit Az a meAler of fast t has been ,,nerally Ftstod

tbat the normal profits of thefie tra4,actioDs are nsglijible.



Banks that tir

to insist the futur

vyejopinont of our

trade in foreign countries must be able to compete with
other forel..;p1 banks operqtini.7 in these countries,. and
for the t reason they ZIZ1 et be free of all fet%er;, ash
are ifs.bsollte17 necessary for a note issuing loir.-rn.
sent bank. If it 1 felt that the, eserican banks are
not rao7.1.1v- rapidly enough in the openinl of the


flVerlileM of trade or that their chereas are e.nicessive,
the 'overnmen t

t con sl der e r:te bli


Ve rnmen t

orned bank for the purpose of eldirw, the forein trod,
Onah am the Japanese Indnttrial Bonk..
that ease, hoover, ue be.nk should not he e. note iseuin.e. bank, nor
bank ti-at should undertake the impossible task of as.-

ingn a cle,rirg house for ell el.ohan6e transactions in
the United States f,,nd ail the -orld, but it should. be
bank free fronall lovernment restrictions or funct one.
It should not I sue. notes or bonds on way unreasonable
asis. It should be p'laini: a business bank, stated for
tho 'benefit of n.11 the 1:-,eople of the United litatee, ani
dealing; 1-7.41 the pEonl
e wel/ .s the ban;:le in foreign
exchange, operiin7 credits, or in any other logitimite

"llether or not the
-..11 open ::..uestior.


iR an7 nece,rei

for such


If It should be felt:, thst our

foret.m business needs that additional encours,,..errient by


',governmental tatielne, it can, to my mind, only be done

offec 'ively on these linee.
The :eederal I:iecerve


should remain undieturb-

ed as the careful custodian of the reeervee of the country and as a conecieetione erotector of th-: ,eold treesurG of the United ::..tates. As such, it met not be .perrnitted to 70 into bueiress ventures, which either involve,
undue risk: or an undue look gee of funds. kny 'ban k. that
riould be permitted to issue Federal ee erve notes, at enator O'er proposed for his etre bank, would undermine the

safety of the whole system if it 'ere permitted to dieregard theee obvious rules.
411. too Mes

erint here under (from page 135 of the Senate's
heerie 5.3928) a typical stetement of enator Owen's,
end in connection therewith, eine thougtts that occur



to me with reference to the 'parish olive oil question,
ich formed t-.0 etartine point of the enetor's interest in the problem of "the iisoon.nt of the dollar in
nen tral countries".
"The Chairman, They could do it, but they do not
want to do it, evitiontly, and the Board of Directors appointed be- the i':ow 'or. 'eenks, which are realle privete
concerns, and that bank is mensurably controlled. by private intereets in NOV (ork City, and they are not °trig
the consent of the re '!'ork
to do foretell buciness

banks ageing foreie:n business"

The Chairmen. c have had the situation during
this war of eeereine the pound etorling, and the dollar
went to discount, end we have seen no tendency in that


direce.,loTI of relief , oecauee tlke ,ioord of1 roc tors fl re
represents ti.vee of :.,11.e row -York 7'erecite, -,h.1 oh are profi concern rt te the do ty of -o riking for
the mekirer of 'prin. te rd cowl grime. :Itee ore not
o federal Eeeerve
cner'ec itI-, any public ft) ti ore
!-Ftem, as It at e te.h1 1 oh ed woe doyeta iled
tt. the 1,4,r11:7,

he Cho irman

tne., the in ter ,t ts of the banke--"

I e tr. on17 vpeeking: of tbo reaeon

Stich led to the leactivite on the part of the direc tore
of the

eeere I,


ek of F,c

or x
di reo tor e 133%oeen :f

Re rerve bank of 1*-- York ?mil it
beak* of New York, fend the bp eke of Now or look at the
ha okire.- nu eine es from the star deoint of el videne, 111 d they
Lv.10640 taut
ere quite ri t O11. it, boob:a e that i.14 what thp 4,tuty Js
are, not e liwea it h
fire, rstabli hotid. ure The
of pro tootinle heAmerioan coneanicr swain: t paying' 46 per
in7 for olive
Pell on for olive oil, *der" the;' are no
ac eine gee a fore ign bank,
at 1i1,
oil. ,,o th* tI 1.h

houle not be nr.mer the control of the New, or bar to at



The Federal


ene tor/o eerier's, e pgi l9 of the hearing e

oar modo emieeta tement oon.aernin,

the rola W. ve .pri cc of oil end co tton in eTain. he
seat of the '3o-ere, orer, ie taken from official

ate,J,ani eh

oltatatione; it le oh* olutely correct end 1.o borne ont by

a pareereeph pulled by te ieertmcnt of Commerce Re
porte of July 1, 191, , on'nee
In this oonneotion, it ir vere in taro atino.7 to note
tetes bee ;...lecedan
the t since many mon th e the Unit
harFro aeon the importa Awl of olive oil and thee on
the oioh her band, .;)e in he ot m embargo upon theEorta.
ti or of olive, oil. 'ere we hey e o eoue tri as, one of whom
131aF., not I :.11 no sell one of I te food productr, and the
other, (mei derine the leworteti. on of t?.-Lle oil en J:;:e6. rv't

i.r on rt4toone1i he pretriiters bre obvious;
toil to conserve our or o
firsts Ceoadoe


thin4s more essential, secol-ld beeauce our trade beilanco
is LaverLe and we should n t Import ark, articles for

whioh there i.o s.b. °lute need, end for thiJ

e may

develop ,...ubstitutes ourselves. AE a matter of facts tYle

ttlas place at
this time cod oar o'.rt protilota rrehrn used in!-,he
facture of th necefAisr7 food. oil. -by, then, 9hoil1.d the
procesE of developin-,.- substitute's


Senator attarik the Fed.eral Reserve !Ward on account of
the :increase in the price of.1...?partiab olive oil? If it
ate.ue ,lifficult for the consumer T4 keoure olive oils
that is t?7.e very the "ni.tes tater. at this
time v±Ashes



It io the veri thing le

essont,lel for .the protection of our olcI ::upply Our conautaption of unticeseart7 articles imported from .foreigr:,
t oumieet 17%.7 of
lands ehould be curtailed..
reuiai4n or foreign tra.Ide balanco far..a of eattin;.7.: under
conl4rol our foreL.-,t e:.4.:cklangee. 3ut it it suet such procese
that he ac.,s.tor so serioug7 object:, to. It is di.ffloult
to follow ths erratic /31004;7 of tt.5.0 onc.tor;.:-.11e oto hand
he delivers orazAon;:. proclaimine thaL the whi-,le country la
seism)? uitilat cray '.';:f4klator .'\riontai swalic to proteo it

from eerioas disaster of the deprocietion of tIe dollar in
foreign lends; on the other hand, 1.!et Insists that the con-.


houlei ;.:ontinue to 'way goe6.a In foreiim ionds at
the 1G. t povvible -prioti so that he way vow:Anus to
C Oti MIrgE! as nruot es possible, al-4 4i;hereby dee.

troy ..heve...t1r;


of remalt,tin... foreign ,:-.3cchangei,

Oet1Te, one- cannot hfilp Iiitinkin.g that 6enwtor
(.,4on Las
idea that theps.nied:.; peseta is pouse.siscd
of feet, with leach it rral1.P1 across the ocean end ina4e
thixws in the .,.;nitcd -1,ateE, and invorsoly, as 1L he
aellar were lkifl4.
elosill;. ero68tb ooau tL order
to bay things 1
ain. At a mater
ot, neithtz the
pesetas nor the dollars walk across t,he
big "pond",
but -rood r that produce the peseta:, in 6pain end the dol.
l&ru in the United ..:.tates do, and that is wha the 3oard
pointi out n its ' ..1;tilledn of arch Dab' It showed,

and it cannot be diErprovienstor cwen'H,
that ° .1113.6.-,J oil hao no doubt ,,,ope Ileve


the United Stator; end that
sc6ctas had y:orke up at
the bass tins, tY ricefor oottan had risen
an.d, ata ri a btas of c:otton in pain wa.
mare oi.ive oil in r3arce ono, pain, in 1,!rovember 1917

than it Amid in June 1914, before the ri e inpevetas
be en. It is true that vith eAvierees mid restricted
transportation, the rarity velue in both otv et is an irn.
portent c triztIni Victor* 'he increase in price of
rore, doer not hocrue
oil in Jie inie
ire1r to the benefit of the oil producer in



wouldedr.1 se 11.r..lbs

of iner.:b re, about

or se ore tar ic


onstor CwcIA,

4en by

.-.11e neat olApe to be



lientr 1,2 sod krzf the
, as
on e tor of ten could be oletal.: tra cod to Ltr per

itr, self !arc? sfuflj irfornrd.


The or.

there are lesson


an ibovt 1i,


susFe t the t ever

tor aubmitte d o U.e
7101114 for the .pur pot,e oe eta 11 sh irw an 'In to rail e d

tt 'he


marx.V. c tared in thi opera:is The oorreson C Ith wkch he impor tuned

Yore len Exchx.nge len k "

tor *1'1 oe
the lletrd and foretm embassies in i.e),'..ington hoed t' la
ran to bc shrewa pervarter of fct. He was proved t
tra sett one t;rrtia. tole d
bo?, a r eeklc 17s
to being seri ou.P. lecao a to br8 ran 'Ling hliz ore 611 tc ,

1^, o

ourpri slug fo r the Fiosrd finally to
covcr tht. t t}- le expert ridviser of 01e onst or , nd unael-

It -ev

fl$11 protector of the do lAyir ezohan .7o, had 'oeen cm:It-tea
the famirs 5ti1 for a t(,ru.3 of five year, be court
ht; 7121

fount) Ma;

ullty of usury end forging o oramoroiel

paiv r
one, t or

won, au Ch ni rman

of the


Commit tee, hrs free seee es to all the finance 411,43artmorit
of the lovernatent, he BIM e he freest !se of hie privilope

to ask for nfQr'rioI. Ylile ho thuaknehLt the lovernured reeasurer
men t tra;7:. trying to hr IL ibcit, on d while he
to re fittef.)

Vt.) t

tt:;) of (ni.chf,.n...e of'peso te. 1;1

the rte of the rt,L1t

1Lre, b e protege

0344 6. to ratio

jell Vet. Z,677



not o-1,. vrort o
po 1 tion" 1

t iricreePed t12 "beta.


Tani el exchelice ,

ed, in tnlien ' ire.





ter insisted in hi---7-h.eLt. quer -

;roti -cl the rtrd. emf.17et1c lettere o thv., cf.
feet thet rernite 0.,,euld be ,T-rerted
erport --old to
so am to enable 'lir: to over
111. zterred ber..;:r e.:obKne.e, trpeollttione _te permit
mFn.deeorved it,
rztOr 'ven


urged., but in order to

the belak.

involved from


011t3 losseF:, threatene,d b;.! "he imminent ban.kruptey of the
concern) towed Semi) tor. Ciwer.1; protege' a.t.A t:16viser this round.

Bk/.11 ofrei hundred tbour,f,nd
het.. made a small f cr tiano

1.3e tAuce, I an told,

his :Ara trawl tiaQ tiara*

Tt le only. wit Treat ba 1.tya.'dou chat I 4enti.on these
fai:As, but they .-hould not be t trithel for the recson that
it tr, all- important %hat the r..,enate ehonld, tror, and that
t're peoplrJ Elhould know, n whe.t, r,v1.. .enco the aenate ie cell-

ed. upon to pnve ft
dan.t.r 0:411, without romeore takirpr upon himelf the ut-mtafnl dot,y of
'gone liebt neon the o
- not 11 the

4.t., but at least,


Senator may suoceed in sowing

scads that cannot but bd promising of a harvest of cavil.




February 10, 1919.


Dear Strong:

I wonder whether you plan to come down this week for the Glass dinner.
for myself,


I shall not be able to be present, as I have to be in Washington for

a conference called by the United States Chamber of Commerce to discuss the rail-


road problem.




4-: 4,0


A few days ago I delivered an addreelt at the Chamber of Commerce on that

topic and am

sending you a copy

interested in what I had to say.

herewith, thinking that possibly you might be
I thought that possibly I might invindyiy- do a

good turn by going at it in the same way that I originally approached the banking
question, and that is the spirit in which I approached it about two months ago
when I submitted some tentative memoranda.

I am rather encouraged by what has

happened so far, because ideas are apparently now crystal-izing somerrhat on the
lines that I have indicated.

In any case, I believe that what

I am doing will

help to center the discussion on the fundamentals, and to brush aside

some of the

cob-webs that appear to puzzle a great many minds.
I shall be back,

I hope, Saturday evening, and if you are still in town by

that time, if indeed you plan to come to the dinner, I hope I shall catch a
glimpse of you.

I hope that your stay in the Adirondacks is


the desired result and

that you are again on the ascending line.
We are back in town now since about a week, which makes it easier for me to
remain in touch with things, but it is not nearly as pleasant as it was in the



I ran into Mr. Pratt the other day at a menel dinner, and apparently he is
studying the budget question,4which is so close to your heart.

It did not take

me long to trace where the inspiration had come from when he asked me whether
would not be interested in taking a hand in that question.


I have my

hands full,for the present at least, with this railroad problem, which is very
interesting and where there is lots of room fer useful thinking and doing.
Hoping to see you soon or to hear from you how you are getting along4

Mr. Benj. Strong.
Lake George, N. Y.

incerely yours,






CARTER GLASS, Secretary of the Treasury and
President of the Council
JOHN BASSETT MOORE, Vice President of the

L. S. ROWE, Assistant Secretary of the Treasury
and Secretary General of the Council



The draft of the convention providing for the establishment of an
international gold clearance fund was prepared by the vice president
of the council and the Hon. Paul M. Warburg, member of the United
States Section of the Commission, in the summer of 1916, being based
upon the conclusions of the meeting of the commission held in Buenos
Aires in April, 1916. As submitted by the council to the national

sections of the commission, the convention has been studied and
found acceptable by several of them, and its formal conclusion
between some of the American Republics is expected soon to take

While there is general agreement as to the practical advantages
of the system proposed to be established by this convention, its
operation and purposes have not everywhere been clearly understood. The council, therefore, wishes to clarify various points
which have arisen in the course of discussion.

In order to understand the modus operandi of the plan, let us
imagine the following transaction. A merchant in New York buys
from another in San Francisco merchandise worth $5,000. Unless
he buys exchange he actually remits gold or currency to that amount,
.involving a loss of interest, and a positive outlay in express and insurance charges. Nevertheless, this is not what actually takes place.
The purchaser in New York deposits his gold in the Federal Reserve
bank, which makes payment through the Federal Reserve bank in
San Francisco. The San Francisco bank complies with the telegraphic instruction and the San Francisco merchant is credited with
$5,000 for account of the New York purchaser.
In the course of time many such transactions occur, involving pay-

ments both in New York and San Francisco and between other
points. From time to time the account is balanced.
So far as concerns transactions between points within the United
States, the Federal Reserve system amply takes care of the situation,
and that system is rapidly embracing more and more banks, having

now more than eight thousand. The protection and supervision
of the Federal Government is everywhere evenly distributed over
its vast territory. In its report covering the financial record of the
United States during the year 1918, the Federal Reserve Board makes
the following statement.






The general plan of operation of this fund has been described in previous repL
and it is therefore unnecessary to make any further explanation of it. Owing to the
great increase in the volume of business between the Federal Reserve banks, caused
partly by Government war financing (including large transfers of funds received from
the sale of certificates of indebtedness and Liberty bonds and subsequent redistribution of these funds among various centers in payment for munitions and supplies for
the account of the United States and the allied Governments) and partly by larger
use of the collection and clearing facilities of the system, particularly in the matter
of wire transfers from one Federal Reserve bank to another, it was deemed expedient
to install a system of daily settlements between the Federal Reserve banks in place
of the weekly clearings which had been in operation since the establishment of the
fund in May, 1915. The' first clearing under the daily settlement plan was made
July 1, 1918. The new system has worked with facility, rapidity, and smoothness,
and has eliminated much clerical work at the Federal Reserve banks In order to
expedite the daily settlements and to improve the collection and clearing service, a
leased telegraph wire system, connecting all the Federal Reserve banks and branches
with the board 's office at Washington, was installed July 1, 1918. Under the daily
settlement plan each Federal Reserve bank telegraphs the board by 10 a. m., eastern
time, the respective amounts credited to other Federal Reserve banks on the previous
day. Upon receipt of the telegrams by the board, clearing is made by book entries
and within one hour each Federal Reserve bank is advised of the amount of credits
for its account from the other Federal Reserve banks and also of the net debit or credit
to its gold settlement account on the books of the board.
Since the installation of the leased-wire system, practically all transfers between
the Federal Reserve banks for account of the Treasury are made directly through the
fund. Settlements on account of rediscount operations between the Federal Reserve
banks are also made by direct transfer through the fund, and on account of the instant
contact afforded by the leased-wire system, transactions are completed within 20
minutes to 2 hours, the major portion of the time being consumed in the arrangements
of details between the respective banks. Transfers through the gold settlement
fund are of great value in these operations.
The transactions through the fund have a very important bearing upon the reserve
position of the banks, and as all entries affecting the fund are made on the books of
the board and at the banks simultaneously, the board is at once informed as to the
effect of the day's transactions upon the reserves of each bank
Combined clearings and transfers through the fund during the year 1918 aggregated
$50.242,592.000, as compared with $27.154,704,000 in 1917, $5,533,966,000 in 1916, and
$1,052,649.000 in 1915, making a gran*d total of $83,983.911,000 since the operation of

the fund was begun May 20, 1915. A comparison of the average weekly settlements
shows clearly the growth of the volume of transactions.
Average weekly volume of clearings and transfers:
$1, 064, 596, 000
1918. July 1 to Dec. 31
966, 203, 000
1918, Jan. 1 to June 30

522, 206, 000
106, 422, 000
31, 898, 000

Analysis of the principal transactions growing out of the Government's financial
program and of the transactions through the gold settlement fund since the declaration
of war, April 6, 1917, shows the important part the fund has played in fiscal agency
operations, for through it the Treasury has been enabled to transfer, without the
actual handlings of cash, vast 911M13 from districts where they had accumulated to
other districts where funds were needed to meet disbursements, the time consumed
in transfers being measured in minutes instead of days.

kit '


with c
I hays


joint c

that y

one gc
by thE

to it.
ment 1

in war


of gol
of oth

by th
and \

and b
be gre


in oth
proc es

to be


"ko, too, many of the other Republics possess strong central instituions capable of functioningso far as concerns gold clearance trans-

g to the

actionsin the same manner as the Federal Reserve system func-

ed from

tions for the United States.
And, what is equally importan
domestic commerce of each nation, and more important for its foreign

istribulies for
y larger

commerce, many of these institutions, if proper cooperation be
organized, may, as at present constituted, enter into arrangements
with one another for handling international transactions.
Here, however, arises an objection, stated perhaps thus: "When
I have gold I want it here under the protection of my own country,
whose laws I know. I do not wish to have my gold in a distant
country about whose laws, organization, or stability I know little."

t of the
s made

rder to
rvice, a
e daily
r credit

nigh the

[thin 20

books of

s to the
)16, and
.ation of


In order to meet objections of this nature, it has been thought


desirable to establish an international gold clearance fund, under a
joint or multiple international guaranty, so that the gold deposited in
that portion of the fund happening to be within the jurisdiction of
one government should be protected jointly by that government and
by the representatives of all other nations which had become parties
to it. This would constitute a joint guaranty not in the sense of
obligation to make good any losses, but in the sense of an engagement to maintain the inviolability of the fund at any and all times,
in war as in peace.
This guaranty is the essence of the plan.

The aim is to assure the

safety of an international fund in which private individuals may
make deposits for payment in other countries, parties to the agreement, and from which other private individuals may receive payments due them. The convention does not take from the public
ctore of gold, or from the funds of private banks, any definite amount

of gold, setting it aside as a nucleus for an international fund. It

provides only the machinery for the safeguarding of gold for account
of other countries.
It merely enables two banks, officially d
by the governments which conclude the convention, to proceed with

entire safety and with a reasonable freedom in the arrangement of
details, to deal with each other as if they were under one jurisdiction
and were making use of one clearing house.



out the
lated to

The convention provides that practical arrangements shall be
made by the depositary banks as to the time and method of clearance
and balancing of books. The intervals between such operations will
be greater or less according to the character of the exchange of com-

modities between the countries entering into the agreement and
entirely within the convenience of the contracting parties. In some
cases it may be desirable to adjust the balance every four months;
in other cases every six months; and in still others, every eight or nine
months, or even once a year, or several years. In any event, the
process will be the simple one of determining the net amount of gold
to be sent by one depositary bank to the other in accordance with
detailed arrangements previously fixed between them; and once this




transaction shall have been carried through, the account will
been adjusted and a new series of telegraphic transfers, through t
channel provided by the fund, may freely begin. Each of the two
governments committed by this convention to act as trustees of the
international fund will designate a person or institution to share the
custodianship and, upon occasion, check up accounts; and the third
government (or as many more governments as may jointly be invited
by the two contracting powers to share custodianship) will designate






representatives in each of the two countries to share the custodianship

of di:

of the one fund created by the two trustee countries.
How does the convention benefit in any way the country which
has normally a favorable balance of trade ? It has been suggested to

for f.

the council that such a country will derive no benefit from the

men t

proposed plan, inasmuch as it will continue to receive payments of
gold due to it for the commodities which it may export. It must be
borne in mind, however, that a favorable balance of trade on the basis


of the exportation or importation of commodities does not at all
necessarily govern the volume or balance of payments. Many of'
the American republics have had in the past, and doubtless will


continue to have, substantial payments to make each year, by way of

interest payments upon the investments of private or quasi-public
character, or by way of service on the public debt. Furthermore,
not only transactions directly between country A and country B are
to be taken into account, but transactions whereby debts of country
A in country B are settled through exchange transactions between
country A and country C. It is rather the balance of total payments
from or to the given country which should be considered, and not
simply the balance resulting from imports and exports, when the
attempt is made to determine the value of a mechanism designed to
eliminate the useless shipment and cross-shipment of gold.
The practical usefulness of the machinery which the convention
seeks to establish, for the elimination of useless expense and risk, has
already been emphasized. If, as frequently occurs, exchange swings
from one gold point to the other, from a condition making for gold importations to one calling for gold exportations, the gold first deposited
in the fund would then simply be released and the cost of the trans-

portation to and from the other country, including two insurances
and two losses of interest, would be saved for the benefit of the two
contracting countries. Attention may also be briefly called to other
considerations, not without importance. Through this channel,
governments may, if they wish, transact business with each other or
settle their accounts with international organizations, to the support
of which they respectively contribute. To such extent, moreover,
as may be permitted by conditions in the credit markets of the world,
the relief of abnormal exchange situations can be facilitated through

recourse to this international arrangement for the deposit of ear-

of th





of n

of g







ir:Zarked gold. The extent to which relief could be found for abnormal

h tng
3 two

'e the

,ed to
1. the

its of
ist be

A all
ay of


'ay of


B are

I. not

a the
.ed to

c, has
d imysited
e two

ler or

exchange situations would, of course, depend upon the individual
circumstances; but the use of a direct, inexpensive, and expeditious
method of adjusting balances through gold deposits would in itself
have a salutary effect.
This mechanism is not obligatory; that is to say, persons who
wish to ship gold may continue to do so, so far as the operation of
this convention is concerned. In other words, it is purely a matter
of discretion on the part of the financial and commercial community
whether or not they avail themselves of it. The convention exists
for their convenience; but if other reasons dictate the actual shipment of gold, there is nothing in the conclusion of this agreement
which will prevent it.
In short, the purpose of the convention is to permit certain designated banks under public control to carry on transactions on account

of their respective nationals, involving an international earmarked
deposit account, to be balanced at appropriate intervals in a manner
agreed upon by the depositaries. It aims to obviate useless expense

and waste of time, and, to that extent, stabilize exchange. It
facilitates recourse to a money of account. It will promote the
unification of the law of telegraphic transfers. Above all, the convention seeks to create a secure and practical method of carrying on

international business, so far as payments of interest or for commodities are concerned, in difficult times or under costly and insecure
conditions of transportation. Exchange transactions will, of course,
continue, and the council fully realizes that with the gradual return

of normal shipping facilities and low insurance rates, the shipment
of gold may again become inexpensive and advisable. But the
council has in view the great desirability of establishing practical
maainery which will make possible international payments to and
from all of the American republics at times when conditions attending

the shipment of gold become most difficult and uncertain. It has
been borne in mind that precisely when the ordinary channels of

such transactions become most unsatisfactory, it is just at that
time, as a rule, that the "gold points" are reached and shipments
become imperative. The council does not need to do more than call
the attention of the national sections of the commission and, through
them, of the financial communities of the American republics, to the

situation which arose everywhere in this hemisphere when the
European war broke out in 1914. How much confusion, loss, and
widespread hardship would it not have been possible to avoid, if, at
that time, there had existed some means of the kind to which the
council again invites the careful consideration of the members of the

In final form, and embodying modifications suggested to the
Central Executive Council and found desirable, the terms of the
treaty are as follows:






Whereas experience has shown that the payment of debts
arising in the course of commercial and financial transactions is
often impeded and rendered difficult by reason of circumstances
which interfere with and temporarily render impracticable the
safe transportation of gold from one country to another, in con-

sequence of which trade is deranged, values are rendered uncertain, and financial loss is incurred, the high contracting parties, being desirous to guard against such grave inconveniences,
have decided to conclude a convention for that purpose, and to
that end have appointed as their respective plenipotentiaries:
The President of the United States of America, __




The President of the Republic of
who, having exhibited to each other their full powers, which were
found to be in due form, have agreed upon the following articles:


With a view to stabilize exchange and facilitate the settlement
of balances, the high contracting parties agree that all deposits of
20 gold, made in banks designated for the purposes of this convention
21 within the jurisdiction of either of them for the purpose of paying


debts incurred in the jurisdiction of the other, in the course of
private commercial and financial transactions, shall be treated
by the respective governments as constituting an international
fund, to be used for the sole purpose of effecting exchange.
To this end the high contracting parties agree never to appro-


priate any of the moneys included in such fund; and they furthermore engage, each within its own jurisdiction, to guarantee the


fund, in any and all circumstances, in war as well as in peace,
against seizure by any public authority as well as against impairment by or as the result of any political action or change what-










The high contracting parties agree to act as trustees of the
fund mentioned in the preceding article, and for this purpose



each of them will designate a bank within its own jurisdiction to
hold any part of the fund there existing as joint custodian with




















ns is



Id to





such person or persons or such institution as the high contracting
parties may concur in appointing for that purpose; and the high
contracting parties further agree to invite other countries, with
which either of them may have concluded similar conventions, to
appoint representatives to take part in such joint custodianship.

Such joint custodians shall hold the moneys so entrusted to
them, as part of the fund, subject to the order of the creditors for
8 whom the fund is held.





The details of the practical operations of the fund shall be regu-

lated and determined by agreement between the designated
depositary banks, and in order to simplify and facilitate such.
operations the high contracting parties agree to take into consideration the adoption of a uniform exchange standard, permitting the interchangeability of their gold coins, for which
purpose they recommend the adoption of gold coins which
shall be either a multiple or a simple fraction of a unit consisting
of 0.33437 gram of gold 0.900 fine.


This convention shall be ratified, and the ratifications shall be
21 exchanged at
22 within two years, or sooner if possible.


ts of
e of



Each high contracting party reserves the right to denounce
this convention at any time, it being, however, stipulated that
the convention shall remain in force for one year after notice of
termination shall have been given by either high contracting
27 party to the other, and that on the expiration of the term of one
28 year after such notice the said convention shall altogether cease
29 and terminate: Provided, That the guaranty of the fund herein
30 given by each of the high contracting parties shall continue in
31 full force and effect so long as any part of the fund on deposit
32 within its jurisdiction at the date of the termination of this con33 vention shall remain unliquidated.
In testimony Whereof the respective plenipotentiaries have
35 signed these articles and have thereunto affixed their seals.



Done in






n to







vi th


day of


_, 1919.




September 8th,191!

31 TS


Filed 10:56 a.m.



Benjamin Strong,

Care American Embassy,

Suvretta Stmtz telegraphed you twice via Paris

Am here

trying straighten out affairs of Nina's brother who still
very ill

Sorry advice your Amsterdam visit reached me

too late

What are your plans and what are &nits can we

meet anywhere?

Wire here or write Baden-Baden Hotel

Stephanie Kindest regards was signed Paul Warburg

De Nederlandsche Bank

3:05 p.m.


to pay



No. of TeIngrami

, 4A.
, - 1
POST OFFICE ..,."....itit. TELEGRAPHS sent
, , m-7.,41




This form must accompany any inquiry respecting this ielegram.



Office of Origin and Servico Instrnetion$

in at


here .a

If the accuracy of this Telegram be doubted, a part, or the whole.
can be repeated under special conditions, particulars of which can be
obtained on application at the Office from which it was delivered.
This form must accompany any inquiry made respecting this Telegram.
Office of Origin and Service Instructions.


BADENBADEN 789 58 10/9 6,20 S

Recet e give at










Con_ 29o.



PAUL X. WAPBURG, cliAtrae,

mcscunvz coma TTET; - A:EPIC X


During the y3 ar under review, the Coesnittee on Policy and 'Ipera-

tion steered substantially the same course as during the preceding year. It devoted

its atter ti on primarily to the objects that enlisted its in interest from the
beginning, viz. the bringing about of a better understanding on the part of both
the bankers and the public of the proper use of the bankers acceptance as a credit
instruzrent; the e stablisheent of a common accord concerning the beet methods of

distributing bankers acceptances, and finally, the development of a nation-wide and

healthy discount market, including as its ultimate goal the establishment of
dealing; on the New York Stock Exchange on a term settlement basis instead of the

present system of daily cash settlements. And the veiy aims that determined the
policy of your Committee with respect to bankers acceptances, have guided it with

respect to trade acceptances.

It is a great satisfaction to report that during the year under
review it was possible for the Council to further develop and strengthen its relations with the Federal Reserve Board and the Federal Reserve banks. While from the

beginning the Council has concentrated its energies toward carrying to the people,
in as popular a form as possible, the message that the Federal Reserve Board and
the Federal Re serve banks wi shed to impart to them, and on the other hand, to convey

the Board the views and requirements of the banks and the public as far as from

t Irma

to time they were formed from practical experience, it is a pleasure to record

that during the current e& these efforts and. anbitions of the Council have become
more and more sue ce sofa 1.

Your Committee believes that it may safely state to the members

of the Council. - without fear of laying itself open to the charge of claiming

ore cit to which it is not entitled - that by acting as intermediary and advisor in


Jeth directions it has rendered important services in assisting in the formulation anti adoption of the best principles to be obsereed in the use of bankers and
trade acceptances. In dealing with These eneetions, the Conmittee could always

rely or advice ani support on the part of members and officers of the Federal Reserve
Board and the Federal Reserve 3anee3


be it in their official or in their individual

and it avails itself of this opportunity to express to them the Council's

genuin.e appreciation of their ware interest and cooperation in the Couivills work.
The report of the Committee on Publicity gives a full record with
respect to the lines on which its publicity campaign moved during the year under
review. The work of education, as far as concerns the making of acceptances and the

purpose for whic'n they may properly be used, may soon be considered as fairly

The Council will have to continue however its fiOrt against abuses, new

varities of ehich must be expected to spring up from time to time.
Recently the Council's attention has been drawn to very serious
occurrence s that threaten the standing and future growth of the American bankers

The Wavy decline in conmodity prices has called forth attempts or the

part of' foreign varchasers to free themselves fr cm contracts which were bound to

subject them to grave, and in sons cases even fatal losses.

This has induced them

to bring pressure upon our banks to refuse to accept confirmed letters of credit
which had been issued for the purchaser' s account.

In fairness it must be stated in

their defense that in several cases they were themselves the vie time of sharp

practices on the part of foreign sellers, who had delayed, or wilfully omitted,
shipping the goods wh.ile the trend of the maket was in favor of the purchaser, but
who nos were using every legitimate, and often illegitimate, means to hurl the

re3rchendise at the importer, \lien the contract had tnrird in the shipper's favor.
But even -.,:hare fraudulent or sharp practices of this sort were unfairly indulged

in by such shipp3rs, this cannot be permitted to effect the sacred pledge embodied in

a confirmed letter of credit, which must be respected in all and any circumstances, as

lore; as the terms and conditions of the letter of credit are being observed under
which the accepting bank had issued the credit, no matter that loss this may
possibly involve for the customer.

The fact may not be disregarded that there is a third and. innocent party

interested. in the transaction, viz: the beeik or fizen that purchased the bill on
the strength of the confinned letter of credit; these bona fide purchasers must be

protected at all hazards if the emericai dollar acceptance is to gain, or retain, a
position as a world's ins trumnot of exehange of equal standing to the Sterling bill.
A bank that dishonestly refuses to fulfill its obligations under such
a contract because it, or its clients, might suffer a loss, or because such customers
bring pressure upon it to disregard its sacred pledges, or even try to inveigle
inexperienced judges into granting injunctions, in order to prevent the bank from
giving its acceptances, ought to be held up to public contempt and any bank found to

connive or indulge in azch immoral practices ought soon to learnthat its ecceptarres
have become unsaluble in our orn market as well as in foreign lands°

Credit is not only a question of financial strength; the moral side

is a factor of equal if not greater importance. The Ptle ricer banking community, under
the leadership of thr Federal Leserve Board and Federal heserve banks

unless they are

willing to see destroyed their ambition to establish the American bankers acceptance in

world. markets - cannot afford to leave any doubt that they will eliminate fran the ranks
of Arra rieun acceptors any accepting house that does not live up to the highest standard

of business ethics.
The few unfortunate oc cat rre nee s that have given rise to this di !cuss' on

and the mis taken ac ti on of judee s that were foolish enough to grant the shield of
temporary pro too ti on to crooke d manoenvers until better knowledge of the re al fact s

forced the courts to eithdraw such protection, in some oases were probably due to igeorance

rather than bad. faith.

The acceptance business, and the very perplexing phases that it involves,

-4 -

were probably new to these judges and to many banks, sow of whom went into

this business without a sufficiently careful study and without having a personnel

adequate ly trains d in the intricacies of the se particular transactions.
The Council will do its utmost to throw li?ht on these practices

so that both the courts, the legal profession, the banks and the public should
fully urrierst and atat it involved in the problen. ln the other hand, it will
emphasis 3 to buyers of Arm ric an bankers acceptance s that the law fully protects

them, in the same manner as the Brit ish Law, no matter what temporary subterfuge

disreputable drawer or acceptca. may resort to.

great deal remains to be lone in developing a genuine and reliable
acceptance mirket in the Milted States.

Very satisfactory headway has been made

tiring the year. The iroportion of bankers aaceptances hold today outside of the
Federal Reserve banks bas grwn from 40% early in 1919 to nearly


The further

the aggregate mount of outstanding United States Treasury Certifioates will be
reduced, the larger will become the amount of bankers acceptances held. as a quick

asset and a secondary reserve by country banks, savings banks and other financial
and commercial corporations.

Much remains, hoaever, to be dorm in this direction.

While in soma states 'the sa;vin

banks kra ve be en able to secure legislation perni tting

them to purchase acceptances, and have been able to avail themselves of this privilege

to a very substantial degree, there still remains quite a number of states in which legisl
tion on these lines out to be sought and,

in certain cases existing legiala-

tion ouatit to be amended. For instance, in the State of New 'fork savings banks are

re miffed to buy only the acceptance s of member banks, while the acceptances of other

corporations that under the Federal Reserve Act have been organized for the very
purpose of granting banlee rs acceptance s, without being member banks, but having

nrmber banks as lawful stockholders, cannot under existing Ilew York State law be
bought by savings! banks, vhich are also precluded from buying acceptances of the

large private banking firms, even though these bills be endorsed by menber


wide senteptance aioxisht, 48.1431 as aest bas our ultimate sin* ean

oniy he *geared if
di eer

itA11144t0 ALS ear 40 Eatable 7.ntsooeseary red tree, taw

tiOna ai perelt the akattet itself to develov Um tee* of what Ls the

atm-lard of a mien Walken, tkooentanco, an Le VANS in London, where such thing es a
membeV caile,

*to likegle not"extown.

awing the coming year your Coserittas believe* thnt the Council

slunk direot lie strongest efforte In the directi on of further perfectinr:
',otosW eouatry.ulde dietrileation fban:ters aoovtanoes. 71-rcellebt prop:ruse
has been trade La readhing a core general s000rd tapoe ",:he point that the proper

npl,acon of selling bankers adeeotartees ie thrdui* the drawer of tSe bill ineteral
throneh Ore aoceptor

The laok of 'unantnit; that lest year still existed in thi 0

regard tub tisArly well been ova room) and le1.45.inG acoopting irtme re now in

prentioal. aernsatirot that ia the interest of the eotantr

u, c Tholo the Tanen!! of

bre) ire re a Cep twines throuitt the wasp tor nue t be cone ?Jared as an urd esireb le
react to se

iiiseount cossisinies wcmivate rtrn hve done a great deal tcreerds
widening the circle of parchasers of Welker* soot2tenees

Itke Counell 11411

continue with unabated vier to heirone thoets (3 in charge e cynr 30,000 V.-inking

lastitutione, that it La Liwoir dit,y, and ..xt the same tine a moans of rroteetion
for thelseivee

become rigular mad

Just a year ago our Committee

pure:Moen; of barirere n000rottomeso

tresned tt ite mtrua) -feurret the

taw a seeing the View Icric 2tout rocchanca plekted on a basis of dealings

on elm eettlraante rather thun. on cash dealinfm.

Thci !revert erytel twenty..

for both the totock -Ichuto and thi country a 'Well pTaVet ec tite dieathr.setheree
cl dallifi8 rot at

he Sala 'AM it of fire 804 01.48 0/H1U:1188 to ihn u htrerweel 1 ad

doe tlt opts nt of a Tel Jab le 11 wenn t mark et in the !ha tad S tat ea.

it Le unnecessary t) repeat tt title It:not-are what was !Anted a year

ago; but It t

glt3at satisfaction to register the vs?? rebetant1e,1 headway made

towards ds

che ultimate goal.

The Yew York Stock Exchange during the period under

review established a ne.chins ra for the clearing of Stock Fitch:we transac ti ons ,

which has proved hijely admirable and for which credit is large ly due to the
Chairman of the clearing Committee, Mr. Samuel F. Strait, whose interesting reports
concerning this topic have be en published by the Council.

It is natural that with conditions as tense as they are and with
the gigantic trans actions involved, progress can only be made caatiously and that

impatience mast not be permit ted to induce those in charge to take further steps
be fore the ground has been thoroughly prepared.

The Council feels certain that

the matter is being pushed just as fas t as it can be with safe t7, and has ay.) ry
confidence that in due course further satisfactory progress will be made.
The New York Stock 7.xchange may consi der it a great achievement

that it could carry out the change s in its technique without any serious hitch or


lie the engiret was kept moving at top speed, and thi s permits us to hop

that the next steps will be undertaken with °meal sunce ss.

formulating its future policy with respect to trade acceptances,

Connittee might well take it for granted that as far as the desirability and
the soundness of the trade acoeptance nthod for certain branches of trade are
co nos rned, the argument has be en won.

The proof of the pie, after all, Ic in the

eat ing of it. when so many hundreds and thousands of firms are testifying as to the
excel lent results ts that the y have actual ly secured by adopting the trade acceptance,

it seem idle to continue to argue with people who persi et in their broad assertion
that the us e of the trade ace eptanc a is inadvisab le or impracticable

The Committee

et' 11 , haeever, , find it a most important duty' to continue to watch the dove lopeent of
*und a sir ab le pract ices in the use of the trade ace apt anc e.

The s tandard of the treat

acceptance must not be pe emitted to deteriorate. That has been said about bankers

acceptances in this regard. applies with equal force to trade acceptances.


future of both instrunnnts is at stake ,if practices are neetnitted to be indulged
in that run counter to a aural bus mess nn thod a and ethic a:

may be proper for the Council on this occasion to place on

record that it vies with great alarm the epidimic of cancellations that is
sweeping the world at this tine.

It is intolerable that bus iness ethics should be

believe d to pe mit a purchaser or eel is r to hold a co ntrac t as bi nli ng only as

long as it offers advantace, but that it could be tre at d as a scrap of paper when

the contract Involves a loss. While the banking c ontainity must insir t that its

nbers will hold their shield free of any blenish in this regard, it Is evident
that the safety of tkinking operations is put in jeopardy and. that the whole credit
structure 311.1St suffer if the code of bus ins s s ethics is pe rnitted to be und.erivined.



January 26, 1920

Dear Strong:

Nina and I were very glad to get your post card and see from it that you
had arrived safely.

Let us hear from you from time to time as to ho'!' you like the


I luet returned from Tashington; where I ha l to spend a week attending the

Pan American Conference.

It was hard work and,

I think, on the whole a feirly

successful meeting, though there wns no real snep to it - Glass making a rether
lame presiding officer, without any enthusiasm and no ability to electrify the
crowd as IcAdoo had at the last meeting.

The opening by Lansing instead of the

President was, of course, a cool affair.

On the


I ohould say that we are

getting more doen to business and away from oratory; however, the trouble is that

in view of our congested market we cannot talk very much business either.
I* enclose copy of a speech which T delivered at the Thursday's session.
I am sorry _you mere not on the program and that Senator McCormick had to make the
-budget speech instead.

I could not stay to listen to it, inasmuch as I had to

get back to the Resolutions sCommittee, which had to finish its work that evening,

but I believe he made quite a good speech.
somewhat dangerous.
shall miss you.

He is a clever guy, but erratic and

Tomorrow there is a Pan-Americsn lunch at your bank and we

I shall be glad

'hen the,show will be over.

Discount rtes went up at last to


with all kinds of strings to it; but,

en the whole, I think it is a satisfactory move, a step which only should have

been taken long ago.

I believe I helped just a little by t

ing to some of the

members about two weeks ago, end also by occasionally dropping a hint in the public

An editorial which I wrote for the Acceptance Bulletin I think was timely.

All of this, however, need not bother you now and I bope that

I enclose a copy.

you are playirK just as hard as you can and forgetting about 'all Street and other
unfortunate spots in the world.

Yesterday I read Mr. Keynes' book, all except the two last chapters Which
I have reserved for tonight.

I wonder whether he sent you a copy.

I am ordering one hare for you and hope it will reach you soon.

much as I do, and

agree with the book as
some hot rejoinders.

In any case,

You may not

I have no doubt thWit will call forth

I believe, ne-eever, that in any case it will do a great deal

of rood in throwing the limelight upon a situation which will have to be remedied
unless we all


have to go down to posterity as a crowd without backbone and


I also enclose a copy of the American appeal with its final signatories

and lists of



that signed in Europe.

It is,

I believe, quite an im-

pressive demonstration.
Washington discourages re tremenAously.

He still has the right

conception of

Polk is splendid and refreshing.

things and his old frankness and punch


spite of his poor health.

Lefingwell is going through a hard time -poor (Jelin!

Thile he is wonder-

fully brave and appears to laugh it off, it is no fun to be in a position of waiting
upon the Lori Almighty to smile upon you or throw you into the discard.

I think

Lefingwell is quite sincere and honest when he ssys that he really would prefer
to Fet out; at the same time nobody likes to be placed in that position of having
been a candidate.

'neon's method of handling this epee is lust as inconsiderate

and characteristic of the man as ever, and stupid at that, because ever if he now
appoints Leffingwell, as I sincerely hope he will, he wi71 have succeeded in taking
all the enthusiasm out of the mar, Who would, of course,


that it ien't a

whole-hearted and enthusiastic appointment, but one made with great reluctance
and possibly as only the best way out.

Leffingwell certainly deserves it and T


should be terribly disappointed if he should not get the job, even though I do
not find him at his best just now and rather iisaprointing in spots.

He gives

the impression of a man who has been working too long in the same surroundirgs
and under great strain -- God knows that the task of the next Secretory of the
Tressury will be a terribly thorny one.

At present they are so scared in that

office that they do not dare move one way or the other.

They wish to keep the

Government out of it as far as possible, which is sound, but they are not encouraging any other real constructive move for fear of exposing themselves to
attack at this critical juncture.

Sir George Paish -poor soul- muddied the waters and made them more
than ever. warm regards from Nina and best wishes from us both,

Always c

Benj. Strong, Esq.,

Castles Hot Springs Hotel,,

Hot Springs,

cially yours,





JUN / 2 4922
June 9, 1922.

Dear Mr. Strong:

It seems certain to some of us that in the
coming campaign the question of fiat money will
play a large part,

and I believe we must not under-

estimate the dangers of that issue.

Henry Ford's

and Thomas Edison's siren songs must not be treated
lightly in a country, that has twice deliberately
destroyed a sound banking system.

Some of us, who

are profoundly interested in protecting the

of the Federal Reserve System and the

future of our banking system as a whole, have been
considering what would be the best ways and means
of keeping the cc,untry at large informed as to

certain fundamental questions of money and banking.
There is a league, at present called "The Stable
Money League", which can be used to good advantage
in this respect, and which has made certain preparations
on these lines.

We have been fortunate in securing

Mr. Waddill Catchings to act as Chairman of the
Executive Committee of this league.



Before starting upon the campaign of education,

Mr. Catchings is very anxious to meet a small number
of men, who might be willing to act in an advisory
capacity in directing the efforts of this league,
without at all appearing publicly.

I have asked a few men to meet Mr. Catchings
on the evening of Tuesday, June 20th, at dinner at
the Plaza Hotel at 7 p. m.

for you to join us?

Would it be possible

We hope to adjourn at half

past nine, so that everybody can still get back
to his respective country place.

I sincerely hope

that I may count on the pleasure of your presence.

truly your

Benjamin Strong, Esq.,
Federal Reserve Bank,







November 14, 1922.

Dear Strung:

My brother Max,

who sailed


asked during his stay


here by several pap

write an interview for them concerning the German


did so,

moment that it would



at the last

be better not to give anything

to the press.


I thought that possibly you might be


interested in seeing this pa

and I am taking

the liberty, therefore, of sending it to you for
your confidential use.

With kindest regards,
S nperely yours,

Benjamin Strong, Esq.,
15 Nassau Street,












by Max M. Warburg.

I have been in the United States for two
months as an 'unofficial observer", whose main functions
appear to be to see the things that might be done, and
cannot be done, along side of the things that should not
be done, and are being done.

That, at least, seems to

have been the unhappy fate of your "unofficial observers"
in Europe.

But, I have had the advantage over them inas-

much as in America, speaking by and large, things are
bright and hopeful, while what the "observer" sees in
Europe is dark and depressing.
I have not been able this time to visit the West,

but I have been agreeably surprised to observe


the East

how well your leading men understand the present European
political and economic problem.

There is a very real and

sympathetic comprehension of the difficulties and the
sufferings of the Old World, and deep down there is a
genuine eagerness to help, smothered, however, by the fear
of getting mixed up in the turmoil without being able



fectively to save the situation.

While, viewing the European embroglio from
across the seas, one can hardly blame the average American
for this fear of needlessly burning his hands, one is tempted nevertheless to ask oneself:

Was it really necessary for


conditions to become so desperate, and would it not haVe
,ssitle to arrest the disintegration of Europe if

America in the past had taken a more active hand
affairs of the Old World?



In saying this, I do not wish

to be understood as wanting to argue for America's entry
into the League of Nations.

But, between so far-reaching

a commitment and the other extreme of entire aloofness,
there lies the famous "middle road", which many of us
hoped America might see her way clear to follow.
It is a matter of fairly common agreement today;

that since the end of the War, governments of some of the
leading European countries have done, not only obviously
stupid and destructive things, but that they have commit-

ted these blunders with open eyes and often unwillingly
and regretfully) simply because the pressure of home

politics and war begotten passions were stronger than
their conscience and reason.

If America had only been

officially represented on the Reparation Commission


influence could have helped the forces of reason to assert
themselves sooner-, and some of the bitter and wasteful

lessons of painful experience

that Europe is learning to-

day, might have been avoided.

Having been in the United

States for two months, I fully understand the chains that
unfortunately have tied Uncle Sam's hands in the past;
but - the elections being over, - the Old World hopes that

he now may see his way clear to free himself, at least so
far as to be able to change his role of an unofficial ob,



server into that of a disinterested mediator between the
European nations.

It is perfectly true, as has often

been said, that the United States cannot help Europe until
Europe helps herself, but Uncle Sam can render valuable and
indispensable assistance by guiding Europe in these very
efforts "to help herself".

Unless European disintegration

can be arrested in the immediate future, nobody can tell
how far it may go, and it is idle to think that America
would remain unaffected by an increasing political and economic upheaval in Europe.

It is reported that Bismarck

once said that he would not sacrifice the life of one
single Prussian grenadier for the sake of peace in the

None the less, it was a Balkan explosion which

ultimately blew up Germany.

Many people in the United

States are apt to take a similar point of view concerning
Europe, but the technical and intellectual ties that bind
the Old World to the New are stronger today than were those
that connected the Balkans and Berlin, and - whether she

likes it or not - America's future is inextricably tied to
that of Europe, and it is dangerous for America to close
her eyes to the lessons of past history.

It seems strange that this fact should not be
more keenly realized by the farming sections of the country.

It is they, primarily, that will suffer from a further crippling of Europe's purchasing power..

It is the last ten per

cent of an article that makes the price, and it is the
producers of America's staples that will feel Europe's dis-



.ntegraAion more than any other class in the United states.
An,erica, so far, has not had a real taste of what a complete

collapse of Central Europe's purchasing power would involve.

Whilst Germany's purchases naturally have gradually decreased, due to the terrific decline of the purchasing power of
the mark, she has, after all, been forced up till now to buy
substantial quantities, even though she could do so only at
the price of further precipitating the collapse of the Reichsmark.

But, it is not difficult to foresee what will happen

when the mark will be so far reduced that it will become
entirely impossible for Germany to continue the purchases
of foodstuffs and raw materials which she requires in order
to prevent extreme suffering, unemployment, riots, and conceivably, open civil war.

My own regretful conclusion is, that we shall have
to face these possibilities in the coming winter and spring
unless a radical turn for the better will occur, which can
only be brought about by an entirely changed attitude on

the Dart of


Allied governments in enforcing the Versailles

As it is, Germany, within a few months, will have

neither food nor coal enough to keep her people in reasonable health and comfort.

It is amazing to see how few of

the many who in recent years have visited Germany have been
able to perceive how sick Germany really is.
she is suffering from pernicious anaemia.


The casual ob-

server is easily lead to believe that a man Who is busy
must needs be a prosperous man.

But Germany is like a



huge factory whose ,wheels are going at full speed, but

which throws the finished product into the seas.

The long-

er such a factory works, the poorer it gets, and the faster
It works, the quicker it depreciates.

Germany's deliveries

of coal,, goods, or of actual cash must be considered from
that point of view.

A large share of the billions of

paper marks that foreign countries bought have only served
to accentuate this ruinous effect.

The mark in foreign

countries falling so much more rapidly than the purchasing
power of the mark in Germany, the latter for four years has
been selling her goods much below the price in world markets,'
ao that Germany never could replace the goods sold except at
a huge loss.

It is true that in such transactions, Germany

temporarily secured a new purchasing power enabling her to
re-stock her supply of raw materials, or to produce foreign
balances with which to pay indemnities.

In all these trans-

actions, however, Germany, as a whole, was a heavy loser,
except where a foreigner bought the Reichsmark for pure
speculation without investing in German: goods or shares.

In that case, instead of being a buyer at a bargain sale,
he became a partner in a concern that was being sold out
by his creditors.

A plain consideration of these facts would show
how utterly Llipossible it is for any bank to estimate how

much foreign countries may have lost through purchases of
Reichsmarks; because no bank can tell the purpose for
which ii

customers bought these Reichsmarks.

That much



is obvious, however, that what foreign countries lost is
a mere trifle as compared with the losses and sufferings
the German people have undergone through the depreciation
of the Reichsmark.

The middle classes, that heretofore had

modestly subsisted on savings of the past, have now been
completely wiped out.

Those of them who are unable to be-

come workers of some sort are, literally, starving, freezing, and dying.

The working classes, on the other hand,

ever since the Armistice, have tried in vain to catch up
in the mad race with constantly rising prices.

It is a

fact that since the War the German laboring classes have
never been able to get back to a fair living standard. It
is generally assumed that the standard of living



working classes has been reduced by about fifty per cent.
In spite of all that, one constantly hears stories of Ger-

man prosperity; and high dividends are cited as proofs of
this contention.

How ridiculous this assumption is, a

simple illustration would Show.

If a man had one hundred

marks in 1914, and these marks drew five per cent interest,
that is five marks per annum, he could buy for that one
hundred eggs.

If his dividend increased from five to

twentyAper cent, and he received today twenty five paper
marks, that would suffice to buy. two eggs, or even only

A plain consideration of facts like these shows how

fictltious prosperity of this sort is, and how necessary
it is to reduce paper dividends, and paper income in general, to the common denominator of the cost of living if



one wishes to find a reasonably fair standard Of comparison.

Insufficient consideration of this point is largely

responsible also for the mistaken statements made with regard to comparisons of taxation levied in Germany, France,
and England.

In a similar manner, fallacious conclusions have
been drawn from Germany's low figure of unemployment.


is generally overlooked that the German state railways and
the Post Office employ about two to three hundred thousand

more than would be neess.sary for efficient operation.

- But, with one hundred thousand soldiers available to control

sixty million people, the Government cannot take the risk
of throwing these men into the streets.

Moreover, the

German people work only eight hours today, instead of ten
as before the War, and owing to undernourishment the general efficiency is low.

In other words; while Germany is

busily working, her production has gone back, as would follow conclusively from the two facts that both_her foreign
trade and the. living standard of her people have been cut
in two.

She has not been able to export enough to pay for

her imports, and in order to pay for her excess importations,
and to produce her indemnity payments, in cash and kind, she
has been exporting and surrendering her capital for the last
four years.

In the past, internal prices and wages have been

following only gradually the decline of Reichsmark 'change
in foreign markets.

Periodically there always existed,



therefore, a handsome margin for the manufacturers and the
foreign buyer until domestic prices had crept up again so
as to wipe out the excessive margin.

Whenever that point

was reached Germany's export business came to a temporary
halt, while the demands for indemnity payments

and for

raw materials, particularly food stuffs, continued.


a consequence, the mark had to be offered again,' while no

immediate balances were available, and the price of the
mark had thus to be thrown down once more until a sufficient margin again existed in order to act as a new
incentive for foreign buyers of German things.

This ex-

plains why the chart of the collapse. of the mark registers

periodical jumps, which were accentuated from time to time,
or softened, according to the influences of hope or despair
engendered by the policies adopted by the Reparation Commis'sion.

Recently the bottomless drop of the Reichsmark has

not had the effect, however, of stimulating Germany's export

Conditions have become so chaotic that the German

manufacturer' and exporter do not dare any more to enter into

substantial contracts for the delivery of goods at any definite price, because no one can tell from one day until the
next what wages will be, or the price of foreign exchanges
on the basis of which 774A1(47materials will have to be bought.

This explains the marked decline of German exports in recent

People have been wondering why France in 1871
could pay her War indemnity without an economic collapse,




while Germany's finances are caving in under her burden.
The explanation is simple.

Bismarck stated in 1871 that

his first concern would be to conserve France's credit sb
that she should be able to pay.

The Entente, on the other

hand, set out to destroy Germany's credit so that she could
not pay.

Bismarck imposed on France an indemnity of one

billion dollars, that is about two or three per cent of the
estimated total worth of that country (in 1914 France was
valued at fifty billion dollars and Germany at about seven4
ty-to seventy-five billion dollars).

The first indemnity

placed on Germany, however,.was sixty billion dollars, or
about eighty per cent of her worth..

It is true that later

on it was reduced to thirty-two billion dollars.

There it

stands today, and equals about forty per cent of her worth!

It was obviously impossible to raise such an amount from
taxation, while the very imposition of so entirely unreasonable and impracticable a load so completely destroyed Germany's credit that, both at home and abroad, it became
entirely impossible for the Government to borrow a penny
by the sale of Government loans.

But a starved and excited

population had to be clothed and fed, and deliveries had to
be made to the Entente if further penalties and disorganization were to be avoided.

Thus, the Entente forced Germany

on the dangerous and precipitous path of paying debts by
printing additional currency, a road which inevitably had
to lead to the present economic disaster.

In money, secur-

ities, deliveries in kind, surrendered ships, rolling stock,



confiscated properties, etc. etc. - but not figuring any
compensation or credit for the lost colonies - Germany has
turned over to her Entente creditors values estimated at
about ten billion dollars, which is about fifteen per cent
of what Germany may be estimated to be worth today,


order to compensate her nationals for the property taken

from them, or in order to pay for deliveries in kind, there
was no other method of payment but the issue of additional
Treasury notes and circulation.

Why then did people wonder

at the rising tide of German currency?

Germany was order-

ed to stop the printing of notes; but at the same time com-

manded to continue her indemnity payments and to indemnify
her nationals for confiscated property.

One might just as

well order a chauffeur to drive his auto a thousand miles,
but not to use a drop of gasoline,

Inflation could be

stopped only if, temporarily at least, indemnities and confiscations were arrested.

With a comparatively unimportant dislocation of
price levels America has found it impossible to bring into
balance her structure of railway rates and wages, and you
have found out that productive taxation cannot be increased
beyond certain limitations,

You have also found how diffi-

cult it is to balance a budget even with comparatively
stable conditions.

It is unnecessary, therefore, to stress

the point of how utterly hopeless it is for Germany to attempt to balance her national budget and that of her railways and other government enterprises as long as the

Reichsmark continues the mad "danse macabre", and wages
and prices fluctuate in hundreds of per cent from one month
to another.

Taxation in Germany reaches much further down

than in France, while the highest bracket of sixty five per
cent applies to the many that earn a few million marks (a
million mark equalling one hundred fifty or two hundred
dollars - according to the daily fluctuation.)

When these

sixty five per cent have been paid, the remaining paper marks

will not buy much, while the marks earned in the past, have
once more been decimated by the process of galkping depreciation.

There is a vast difference in the economic ef-

fect of taxation when its proceeds are spent within the
,confines of a country (when taxation means only a wasteful

process of redistribution of income and property between
the nationals) or when the proceeds of taxation are thrown
out of the window and into the seas.

The latter is largely

Germany's condition and explains, to a certain extent at
least, why she is in so desperately critical a state today.
What can be done about it?
simple and sad.

That is a long story, -

Germany in her present state of collapse

and exhaustion needs a breathing spell.

She requires five

years of complete rest so that the mark may settle down to
some level of stability.

Then only will Germany be able to

balance her budget and to make an honest balance sheet, and
the world at large will be able to judge what her real
strength will be as she emerges from the War, crippled in
resources, and with a larger population than her present



depreciated plant can sustain.

Given such breathing spell,

and given a reasonable support in this process of stabilization, and given the assurance that after its accomplishment it will not again be hopelessly upset by the imposition
of excessive indemnity payments, Germany's credit and her
economic and moral st,ructure can be rehabilitated, at least

to such a degree tha

a certain proport on of her exports

(let us say ten per cent) may be set aside and turned over
to her creditors for a number of years to be agreed upon.
That annuity could be made the basis of a safe international loan and, if the interest installments for the first five
years were set aside and retained from the proceeds of the
sale of the loan, it could be placed on the market today,
and provide for some payments to France and to America, and


moderate stabilization gold reserve for Germany.

America's claims against Germany could thus be settled, and
the confiscated private property could be returned.

I need

not enlarge upon the point that the vindication of the principle of the sacredness of private property i

of vastly

greater importance for the United States than for Germany.

It is to be added that these thoughts are predicated upon
the assumption that the armies of occupation will be withdrawn.

As it is today, Germany pays four hundred thirty

million dollars for their upkeep, and that is more than
twice the cost of the entire administration of the German
governme-nt, and about twenty per cent of Germany's gross

export trade in her most prosperous period.



The depreciation of the mark is breaking Germany's
back not only economically, but also morally.
of the War a man put one thousand marks into a savings bank,
he cannot buy a pair of shoes with it today.
verted his one thousand marks into dollars

If he had conhe

be worth

about one million five hundred thousand marks today.
other words, "Save, and you are lost!

values and you win!"


Buy things or foreign

Is it possible to conceive of a more

pernicious state of things!

May we be surprised if it

creates a country divided into three classes of society:
one that suffers and goes under in decency; another that

profiteers cynically and spends recklessly; and another that
writhes in desperation, and wishes to destroy in blind fury
whatever As left of a government and of a society that per...
mits such conditions.

If you have a poor crop in the United States,
the party in power generally loses the next election.


long, do you think, a liberal republic will be able to sustain itself in Germany if her Government will prove powerless to bring about a change within the near future?

Germany has been the bulwark against Bolshevism, her liberal and most constructive elements hold out their hands to
the democracies in the West.

If no response is coming from

that direction, either the leaders of reaction or of com-

munism, or both together, will succeed in turning Germany
to the East.

That would be a fatal day for Western civil-

ization, and for the peace and progress of the world.


Economically, it is easier for Russia to recover
than for Germany.

Russia- an essentially agricultural

A few

country - is like a broken table, easy to repair.

good crops may put her back on the road to recovery.

Germany, on the other hand, - a complicated industrial
unit producing only a small portion of the food she consumes - is like a broken clock-work.

It will take infinite

patience, time, and intelligence to repair every piece
the intricate machinery and set it going again.


If Germany

is doomed to sink into chaos, she will not be able to play
an important part in reconstructing Russia.

Instead of

Russia and Germany recuperating as two independent units,
the result then to be expected will be a "merger of miseries".

Even though politically they would remain separate,

their common necessities, sufferings, hatreds, and contempts
would weld them together and in this amalgamation the Slavic
With Ma-

race might easily become the dominating element.

hommedan pretorian guards conscripted in Africa, and carried
across the Mediterranean by France in order to be taught

how to overlord the white man - and white woman, and with
the Turk back in Europe, one cannot view with calm indifference the prospect of seeing Asiatic civilization advance
its frontier lines from the Vistula to the Rhine.

The flight of the mark has been the inevitable
economic consequence of the policies pursued by the Entente
and of the panic it has engendered in Germany,

A reasonable

settlement of the indemnity question - and nothing else -



will arrest it.

will stabilize,

With the return of confidence the mark
and faith and hope will come back,


which the Germans will not continue to do productive work,
and without which Germany's creditors cannot hope to collect anything from their debtors.

more dangerous than one

A nation of beggars is

that still has

something to lose.

Russia and Turkey have opened the world's eyes in that regard.

Let the Entente take good care to learn from that

lesson before it may be too late,







441, P


gt,e4/.9,6 td-Le;et 4.;.p



/tv.4 7L (trie/a,









4 /72 ,,




'77A/r?-2J' 14?"9:)-21













'77A/r?-2J' 14?"9:)-21












4 /72 ,,






mAR 8 Ra3




March 7th, 1923.

Dear oh i Ben:

The enclosed may amuse you, and that is why
I send it.

Kindly return it after you have read it.

I hope you will have an excellent trip and
that the snow will not delay it.

If you will let me

know where you are I shall be glad to write you from

time to time such news as may entertain you.

With all good wishes from my ladies, I am,

ordially yours,

Hon. Benjamin Strong,
470 Park Avenue,




April 23rd, 1923.

Dear old Ben,

I am delighted to hear the good news about
you from your fellow-workers of the Federal Reserve bank.
Nina and I were also tremendously pleased to
learn of your boy's engagement.

He certainly is not

losing much time in starting out on his own feet, and we
both wish you and him every possible happiness in his
future marriage and career.

Peter Jay permitted me to read parts of your
letter to Owen Young, and I was much amused by your description of your cure.

I hope it will be entirely success-

ful, and that you will have every reason to be satisfied
with your progress.

Just in order to keep you busy I am sending you

under separate cover a copy of the April number of the
Netherlands Chamber of Commerce publication, which has all
linds of "dope" about the Dutch East Indies: at the same

time I am sending you a copy of "Asia", which was devoted
almost exclusively to that part of the country in which I
know you are so very much interested.



On Thursday we give a dinner to Nr. Goodenough
of Barclay's Bank, of London;

I shall miss y

Englishmen coming over


We cannot have too many

just now.

They are the only fellows, who have got the



both concerning international politics and inYour friend Tiarks is also expected

ternational finance.
here very shortly.

They have great plans to start a

over here together with Schlubach;


I assume you are fully

advised concerning all that.

With warmest regards, in which all the family
joins most cordially, I am,
Always/sincerely y

Benjamin Strong, Esq.,
Governor,, Federal Reserve Bank,

15 Nassau Street, New York.



May 2nd, 1923.

Dear Ben,

It does my heart and my eyes good to see your
handwriting, and I am delighted to know that you are doing

I can sympathize with you when it comes to

writing articles, which for reasons of state and other
valid reasons it is not proper to publish under one's

My suggestion would be:

write them first and get

them out afterwards in one tom or another.
I am sending you enclosed a copy of the "Acceptance Bulletin", in which you will find an editorial
on "The Dangers of Muddle-Headed Thinking", written by
the "muddle-headed"writer of this letter.

The thoughts

expressed are common place to you and me, but unfortunately not to the average banker, politician and economist, and
I think it is our duty to drive these truths home whenever
we can.

The object of these lines is to give you a

good bit of news, which is, that I learn from men, who seem
to know what they are talking about, that the new member of
the Federal Reserve Board from Memphis is an excellent choice.



He appears to be an independent, courageous fellow, who has
had exnerience as a farmer, banker and successful' re-organizer of an important dry goods business.


dependent means, 6 ft.4 long, telling good stories, and from
all I hear, I think, he will add a good deal of force to the
Board, and,God knows, that is needed!

I hear also that Mr. Dawes has made his first appearance and is making a good impression.

I am sorry to see

Mitchell go; because he was a man who was always seeking advice, and he was a careful chap and, after all, a trained

If he had 100% brains, however, he has been extreme-

ly successful in hiding the evidence from me.

When writing

his epitaph, I should say that his qualities of the "heart"
were strongly outweighing those of his "mind' which is very
lovable and


but not always conducive to high ef-

ficiency in office.

I am curious to see what is "boiling" just now
in Europe.

A new reparation offer is probably coming; but

I expect that it will be turned down once more, and that the
negotiations will ultimately end in enforcing some new settlement once more in disregard of economic possibilities; and
then what?

We had an interesting dinner at which Mr. F. C.

Goodenough stated his views in the unbiased and gentleman-like
way which characterizes

British bankers.

what a lot we can


Lord Robert Cecil also made a great hit

learn from them!

by the moderate way of presenting and arguing his case. How
clever they are!

Bernhard Shaw says quite correctly: "When

an Englishman wants anything, he makes a religion of it and
then does not let go till he succeeds".

But they have such

a wonderfully effective way of hiding their passion!
This is enough philosophy for today.
gossiping in order to chat with you.

I am just

Pierre Jay and Gov.

1Norris, who were present at the Goodenough dinner, greatly

helped in the discussion, also Houston and Leffingwell.
the same I missed you
With best wishes,
Aiwa s yours,

Hon. Benjamin Stroiig,

Governor, Federal Reserve Bank,
New York.


May 8, 1923.

Dear Mr.Gilbert:

Mr.Cse hs suggested that I send you a. copy
of the otter I wrote to Governor HrrdIng with regard to
the Havana diEcesion.
I tf4e much plet,sure In sendirg you he!7ewith:
Co:2.1 of my letter to Harding.
Ctn5 of my on report to Mr. McAdoo, to
the Federal Reserve Board, d:A.,ed October

4th, 1915.
Co;;of the sub-Committee report to the
Federal Reserve 'Board with regard to the
McAdoo-wilson plan of orenIng pq(enoies of

the Federal Reserve Banks in South America:-

This reTort wr5 signed at the time by Mr.
Delano, Mr.Hrding, 5nd myself.

May I ask you-kindly to return the latter after
you nave read it?
I reed not add anythigg to what I h-ve said in
my letter to Harding. I think the Board is about to coarAt
a stupendous blunder by ermitting (in order to please the
State T)e-pextmeut) the Federal Reserve System to extend Its


operations in its own nsme into foreign countries. I should
think that it had troubles enogh st home! Would it not be
possible to delay decision until May Ptst, when the Federal
Advisory Council wil meet in Washington, and when a matter
of sf;ch importance might well be discussed with it?
With kindest regards,
Always sincerely yours,

Hon. S. P. CiDert,
Undersecretary of the Tref,sury,

Wsshington, D. C.


nc1 S.

May 21, 1923,


The Federal Advisory Council believes that all the services
inquired about by the Federal Reserve Board in its letter of
May 3, 1923, enclosing copy of "Memorandum for Governors' Conference,-X-3676", should be continued, except that the Council holds
to the opinion that the service rendered in the free collection
of non-cash items, both city and country, should be reduced,
free collection of coupons, however, should be continuedCouncil understands that this question is now being studied by a
special committee of Governors appointed by the Board.

The.Federal Reserve Board has submitted to the Federal Advisory
Council a copy of its resolution in tentative form authorizing the
Federal Reserve Bank of Boston to establish an agency in Havana,
Cuba, and specifying the terms and conditions under which such an
The Board has asked the Federal Advisory
agency should operate.
Council to express its views particularly on the question whether
the restrictions embodied under "number (1)" of the resolution are
far-reaching enough to insure safety and on the other hand, whether
in the opinion of the Council these restrictions are so far-reaching
that they might prevent the attainment of the objects of the establishment of the agencythe outstanding objects being, as members.
of the Board have explained to the Council, the so-called stabilization of the Cuban currency and banking situation, and the furnishing
of a continuous supply,of clean money.


A careful examinatfon of the resolution leads the Council to
the view that the limitations are not stricter than the circumstanThe stupendous losses that American banks operating
ces require.
In Cuba have recently suffered cannot but impress the CouncilVvith
the absolute necessity of placing the greatest possible safeguards
upon the open market operations of Federal Reserve Banks in Cuba.
If these bills are to be bought by the agency before they are
actually accepted by the bank on which they are drawn. it is obvious
that the Board is well-advised if it stipulates that they shall be
Also that
secured by shipping or other documents conveying title.
they should bear what the Board calls "a satisfactory bank endorse
Without these safeguards obviously the agency would not be
With these safeguards it is doubtful,
safe in buying these bills.
however, whether the agency will find an adequate supply of bills
A very large
which are thus made eligible for purchase by it.
number of these bills are being drawn as so-called- "dry season
credits"--that is, the large sugar. growing concerns are permitted

to draw on the banks granting the credit for the making of the
crop in advance of the grinding, and during the grinding period.
and the shipping documents are forthcoming in due ceurse as soon
as the raw sugar becomes available for shipment. While these
bills are excellent investments for Federal Reserve Banks after
they have been accepted, they are therefore, not available for
purchase by the foreign a#ency in the foreign country where they
are drawn, :mother difficulty arises when we reach the point of

defining what is a "satisfactory bank


If we


restricting this definition so as to include only member banks,
there would be only two banks available for such endorsement for
the agency, and this would give them a position of preference.
the other hand, it will be very
for the agency to discriminate and to refuse the endorsement of local banks or the
Canadian banks°
The fact remains, however, that the Federal Reserve
Bank is in no position to examine these Canadian or local banks in
a similar manner as it can secur4 statements and examinations of
American endorsing or accepting institutions. There have been
quite a number of important Cuban banks that have gone into receivers hands, and one of the important Canadian branch banks
became heavily involved only about a year agoc
Moreover, it
should not be overlooked that some of the large sugar estates
are practically owned, voluntarily or involuntarily, by banks
and banking firms and that in such cases the bank endorsement is
not quite as independent a guarantee as it would appear. If
the agency would be very careful in selecting the names that it
would consider as satisfacterv endorsements, and in keeping the
amount that it would take of each name within very conservative
limits, it would soon be charged with giving a position of preference
to American branch banks.
It is hard to conceive, however; how
such a devdbrment could be avoided.
Moreover, the supply ef
these bills will be forthcoming only during certain seasons of
the year.
The operations of the agency will, therefore, not be
only eeasonal.
On the whole, the Council cannot
trictl 3?_
; w71,11vtl,
t, the Cu,an
banks or secere any pcsition of continuous effective influence for
the agency


What has been said about power to purchase veceptances applies
to a certain degree also to power given to the agency to buy and
sell cable transfere.
Thie, too, would be only a sporadic business,
and there is grave doubt whether the agency would be able to
secure the bulk of this business as long as it could not buy the
bulk of the long bills which would be offered in the market, and
as long, therefore, as a great many of the
of these bills
are mov, 111eiy to send their remittances to some New York, Philadelphia or Boeter correspondent and draw ageinst, these remittances
by 'cable,
Moreover, the volume of cable transfer business to be
done 'by the agency would be determined by its willingneee to carry,


itself, the exeense of shipping currency. It also must be borne
in Tina that a bank buying or selling cable transfers would' not
of necessity pay in currency or receive currency, It may simply


receive or make eayment by transfer in the settlement at the ClearleFonse,
It is, therefore, a mistake to assume that all these'tranzs
actions would result in. currency movements,

Governor Harding of the Federal Reserve Bank-of Boston.
appeared before the Council and explained his thoughts concerning
When asked
the future operations of the contemplated agency.
how these operations would tend to stabilize the currency he
replied that Cuban currency was practically stable; and shout the
currency situation itself he stated that in hie opinion it seemed
Worse than it actually was, inasmuch as there was a great deal
of clean currency in Cuba, but this was held back by the banks
and the people while the unclean currency was put into circulation.
He said that the total amount of objectionably soiled currency
in circulation was estimated at about ten million dollars.

While the Council is in full sympathy with the ends that the
Board is trying to attain, it believes that the plan as now conttmplated would not prove successful in actual operation and
that what the Board desires to achieve can and should be accomplished
by other and simpler means which would not involve the ominous
step of permitting Federal Reserve Banks to establish organizations
of their own in foreign countries---a step which in the opinion
of the Counci7, was not contemplated by the Act---a step for which
the traditions of the important European central banks would give no
The following thoughts have suggested themselves to the Council
and are herewith respectfully submitted to the Board for its conIt has been stated as an element of uncertainty in
the Cuban banking situation that in case of runs or emergeneies, the
banks cannot count on obtaining an adequate supply of currency
It would seem to the Council that
within a reasonably short time°
if provisions were made to maintain at all times an adequate currency
supply at the Jacksonville Branch of the Federal Reserve Bank of
Atlanta, or, if need be, at a branch to be established by it at Key
West, a currency reserve could be made available for the banks in
The mere
Havana in practically one night or even in a shorter time.
fact that such an arrangement would be announced would have a reassur
ing effects and in case Or need no doubt this arrangement would
a provision of this sort would
prove entirely
give Cuba assurance that a sufficient volume of currency would be
forthcoming, there remains the second phase of the problem, which is
If the
to provide for Cuba a constant stream of clean currencyG
Board authorized Federal Reserve Banks to appoint correspondents
among the banks operating in Cuba, for whichappointmena the Federal
Reserve Act gives them undoubted authority, it would be an easy and
entirely practicable matter to have accounts of Federal Reserve Banks
opened not only with the American branches but also with the leading
If such accounts were opened by Federal
Canadian and local banks,,
Reserve Banks transmitting to such Cuban banks, let us say, one hundred
thousand dollars in clean currency, for which balances collateral
could be required, and if at the Same time arrangements were made with
these correspondent banks by which the return of unfit currency to
the United States would be facilitated, a simple machinery would be
set up by which these balances could be continuously replenished by
the remittance of clean currency, while the soiled currency

sufficient.- While

volume thio



old be ascerteined
:lencelrained from
because it wculd
without sobjecting
ol or exposing it

r ti be announced, the

Ld be
of oo

3 La.


whidh might lead
:s Own organtzations
tem to operation of
If, as these operations develop
Reeerve Bank,
o Bar. or -y
,Federal1-17q77 3t01111d
they are ire ' do sc through the
orreo, lents or agents, Jr agencies (whichThe Council fails to see that these
iy way promote or that they are directly






tainment of the end sought by the Board; viz,
adequate currency reserve, or the furnishing

of clean circulating notes. From Governor
e,- it would appear that the proposed in cable
mainly for
the open market operations are
which then would
r giving the agency a legal status,
the currency functions which are the real
'aed, but for which Section 14-E does not
of which of the Federal Reserve banks should,
-ler share in this development, the Council
does the Council think that the Federal
emselves should look upon this problem from
oetition or of aceuring any special advanview o
orticur dietrict The question must be judged
, of view of what is best for the Federal Reserve
for the United States, and also in this case of what
eet advantageous method of procedure in working out the
1 problems of Cuba, in which the United States has so
and for the welfare of Which our country has
that it has toward no other foreign wationo


)1' the opinion that there is nothing in business
change in rediscount

ons which would occasion any

This is a copy of a memorandum which I

dictated coverfng this meeting,wilich

please destroy after perusal.

P. M. W.


May 21 and 22.

eefore the meeting Mr. Rue and I sew Secretary Mellen, to whom

I eeplained in full the gravity of the step to which evidently the Federal Reserve Toard wes commiWng itself Aith regard to the establishment
of an organization of the Boston Federal Reserwe Beek in Havana. We had
ebout a half hour's talk, the upshot of which wes, that the Secretary
acknowledged that he fully agreed with the point of view Mr.Rne and I
had expressed; that he thought it was undesirable and dangerous for the
Federal Reserve System to go into foreign countries with an organization
of its own, but that the matter had come up et the Cabinet meeting, and
that, unfortunately, he had not reelized the Importance of it, and had

permitted it to slip by without taking any action; that now he 'elt it
wns too late. I tried to impress upon him that it wes neeer tO3 late to
attempt to prevent a grave blunder from beeing committed, but I did not
succeed in arousing him into action. Mr. Rue Gnd I had urged him to
come to the Board meeting in the a.''ternoon, but the Secretary said that
he hed important eeetinge at that time, and it would be imposeible for
him to come.

A.t the Boerd meeting, Governor Criseinger informed the Council
thet tee Boerd hrd approved an agreement between the Boston Federel Reserve Bank ..nd the Atlanta Federal Reserve Beek, under which the Boston
Bank was to open an agency office in Havana, which was to deal in ce.ble

transfers and engage in oren market transactions, le:ying dollar acceptances secured by shIpring documents, ,Add carrying a s-,tisfctory benk
endorsement". The currency was to be furnished by the Atlanta Berk in

-2eceordence withA1,he two Federal Reserve Banks, which had been ratified

by both Federal They wanted to hear from the
Reserve Berks.
Advisory Council whether the conditions laid down for the purchase of

bankers acceptances were restrictive enough, or too restrictive, and
for that purpose they held submitted a copy of the resolution.
When Mr Rue asked the Board to state the reasees that
prompted it 1) to ect in such hurry, 2) why it was deemed necessary
to oven en agency in Cuba, 5) how it would operate, and 4) as to
whether the Board was satisfied as to its legal powers in the premises, Governor Criseireer answered that the Board had taken this
etep after very full consideretion)ae to its legal powers,) h d taken
advice, nd was confident of its 'osit'on in this regard, and there
wes no reason why the Board should discuss the pros end cons of the
proposition with the Council inasmuch as a definite Action had been
determined, and that the Boerd simply wished t- discuss the question
of banking deteil which it had submitted to the Council. This position was also taken very emphatically by Doctor Miller.
I then reed to the Board the section of the Federal Reserve Act which giveste the Advisory Council the eower to ed4rese to
the Board any inquiries cencerring the operation of the Federel Reserve System that the Council might deem fit to address to the Board.
I explained to the latter that we did not wish to be critical or destructive, but, on the contrary, we wished to be helpful and constructive, but that we could not he of essistence unless the fu.1J information to which we were entitled vpis given us; thet we were not in the
position of asking for a hearing, but requesting Information to which


Doctor Miller then conceded that if the queetion
were eldreseed to them in this manner, we rere within eur rights,
upon which a discussion of the whole subject on bread lines ensued.
They took refuge behind the fact that information had been
furnished them from the White House that it wesimeortnnt that the
we vr>re entitled.

Federal Reserve Eystem ehould open an agency in Cuba under its own
name in order to block the plans of the Cubans now under discussion,
of esteblishing e Central bank of their own. while the matter was in

abeyence until October, it was important that action sheull he taken
n between. General Crorder hA been very emphetic upon this point,
and while it wes eenerel'y conceded that it would not be desireble
for the Federal Reserve System to go Into foreign countries, Cuoe,
ler the Platt emendment was in e position quite unique, which jus,,fied exceptional mesures. Moreover, the investment of Americen
oital in Cuba emounted to posihly a billion dollars, -nd it was
iaiortent for Pmerice that these irvest-ents should not be placed in
jeopardy, by permitting Cub i to establish e banking system which, no
doubt, would drift into the herds of politicians. As seeeinst that,
xe emphsoieed that no doubt vr?.ys end meens could be found which would

bring the desired result without o.ening the of the door for
the Federal Reserve System to be drawn into foreign fields. It is
resting to r te in this regPrd thet Vice Governor PlettNid not

that respect why the Federel Reperve System should not go to

-"r+o Rico, the Philir,pires, Peneee, or other similar 'laces.
We st.ted very frrkly .11 the .reuments cone rrIng
MI4 derger of such F developnert, but it viws npuerent that we were
-uing against closed minds.


appeared before
Y'ter luncheon recess, Governor Harding
the opening of the agency
the Coil, and mede an argument for



His et etement ws 1,rg-winded, nnd ocvering In greet de-


kinds of irrelt,vent phases of the situation.

to p n him dcwn

to u definite statement S3

When we tried
to how the agency would

vori under the rentrictions laid down by the Board, he wae evasive
aed entirely unconvincing.

He etress-d the notnt, that if his agency

clan were blocked, the country would give it the construction that
New York, having already a position of such overwhelming prepon,!erance,

/wes unwilling to

let any other district secure this influence in Cuba,


and that this weuld stir up a great deal of feeling all over the countrZ.

It is only fair to stete that this argument was laughed out of

cenrt by the entire Council.

He niso ste,tei that the thought that if

tile poeers given to the egercy by the Iloard were proven too reetrictive

that, after e while, the Bonrd

nrould fird that it would have to enlerge

When esked in a general wey 'other better results would not be

achieved by '-eving the stronger banks in
United c=tetee banks,


Cuba ect as agents of the

distributors of United St tee currently, ender

the proper sere guards, 'he said that he certainly hoped that if we

found ''ie plan imprectireble, we world not fail to submit an alternative


The Council adjourned at five, ppecinting me a committee

of one to write a report concernirg e suggestion for a pr cticeble

pin which 1 had submitted, and which I had discusend.
The first draft of this reeort was written on the erroneous
eseumption resulting from the statement by Covernor 1-arding thnt
atthe agency would he .eralitted to buy

hankers acceptances endorsed

member 1)anke, which wcull have given the City Bank end the Fi-st

Natiorel Bank of Boeton e monopoly, and would, therefore, have
proved :ulte impr.cticab3e. While the report was being typed,
leo.nee 'rem MrIll'eler,with wilco: IViti, staying over night, that we
were leberire under a miverpreheneicn, and thnt the contrect pro-

vided, TS stated tefore, for a nsetisfactory benk eniorsement".
re-drew my rsrart 13te in the night, and it *es submitted thenext
moreing to the Courcil.
rhIle we were welting for the typewritten lojes, I
-veiled myrelf of the opportunity of giving 6 little talk to the
Council, el-ere, the eew membere, 4r.Jamee an MreDawes, et my invi-

teti-n belng present; also the Couneel of the Board, Ur.4yett. In
this talk I ehowad now Section 14g tetd greduery developed fren eugeestiens I hi tale as lerly ee 1007 and 12C8, and I submitted e

nrirted noty of e bill introduced in !DO8 by 3enetor Burton, by
ceurteey, which contains, alNost verbetim the lengeege defi, leg the
pcwere of the Federal jeeeerve Banks to deal ir bullion, and make ed-

venees the-eon cs it later went into the Aldrich Act, art freu there
irto the Federal Beeerie AA, and it shows the first beginnings
of rec4-,fon I4E with regard to foreign cerresnonderte crd their powers,

ite 1-ter perephreeirg in the Aldrich Act, ind its edortion almost
vertrtim from the Aldrich Act by the Federel Reserve Act. I believe
nrnld bring convincing proof to my teerere es to the feet that
4-reberefel-tere-e; Vie eectler-wee-never intended to convey by t le Act
the eoser# f:r Fedirel Reserve Bo cs to go into countries e4th

their own orgeniertten in order t_ do lioneer work in these countries,
or to stabili,e the currency of such countries, but, on the ccntrery,

tht these powers were given in order to enable Federal Reserve
Benka in other gold countries, for their own protection, to hold

ortfolios of foreign bills drewn on other god countries, eni to
-at, hlish corres erdents, or agency reletiens, with exist'ng firms
or benks inNther eentries, who Tculd aesit the Federal Peservf.
enks incollecting these foreign bills or reelenishing their held:ngs of such foreign bi;_is. I also pointed out that vh'le in
Section 14F, the expression occurs onceto "dsteb]ish agencies',
fromwkich the Federal Reserve Boerd claia.s to be ebl- to derive its
cowers, that as ege,nst that the Seceticr conteine twice the 1enguage"t2.__SLIelinie agencies or ourresondents", which to my mind

Ices not leave eny doubt as to the eriginel meaning of thia Seetton.
The Council then oonsidered my re-ert, and edepted it
with few changes, efter meich the joint uessien vita the B-ard w-s
taken up &gain, ani the report was preeented. I beieve it is sefe
to s4 that cur impreesien was, that our report convinced the Ttesrd
that the plan proposed by it w-e not Lreotioable, are. tht,t, the Tlen
prop sed by us wet practiceble. As the debate proceeded, herever,
it became apparent thatetbileemembers of the roc.rd would be dindined to stcnd behind 6 pi n which wOu.d eperete through the eeisting banks, the ;mint of view of thoee wombers beingeven though
they did not express it quite frenkly, that a plan which would -ut
tne. Federal Reserve System in a positien of competition witt the
existing commerciel banks of Cube would be sefer for them to back
than one which might subject them o the charge, th t they ,re
nelpi g through their Ten, the commercial benke opereting in Cube,

:articuL rly es only two of our Prgest brinks for the time hdrg Pt


least, would be the ones to profit from each a course; that by
JoiT,7 so ne lere securing the good will of the C,.' nedian banks
and the locA Cuban l*anks, 'which all would !ofit elually, and
which would courate in diStrbuting the currency , did not
.wiarry suf:Iclent weight:to. break down that pnint ,)f view.
The Council' adjourned a.fter lunchAn7 with the Roard,
et whichimeinly, gi floral af:)rditions were discussed with no definite indication s tc what the °ono:IA:slots of the Ford would be,

utd ..hetl'er they w:ull act promrtly or delny, and seek further

7111v going tome, it occurred to Me a1 the train, that
possibly 6. voily t mi,ght be .found by suggest'ng to the ("uban Clear,

ing Hu' t 111. k s (e14ht ifl nub) to organi7e a smix11 bank of their
reer,-.44,.slbility or these)? eight Clearing
own, :11oh untir the c.
Alict rs ,he F.,,,gerny of the Fi'rt1. Reserve Bank of
nk that wished to make it its
loston, or any other Feder

Souse b7nks,

The Feisral,ieserve

rI2 could then or

'an .4c6Ount with

thi nisw bark to be .0.1-Ear17.opd, by shipping curreney t
s'oold then' th.Tonit JAB fUnds,or

ft, and the

rather It Curterey, with


the Clring Htus0hrki

Theoqrrerny vauld be paid out bY them,
1d. thIls glzt irtOeircult1or1 ite n return for the balance Whi-h
the E4;:ancy could' r4.2 taln vitt theT, these el e?rin7 tkure
world cooperLte in ttirning bac)4 t-.1 the agency soiled 'Currency,which
wou2d ship it Lou, :.;.td re-eFtahlish its balancer by new currency,
folve the
which it. would reelye jr rturn. Tht, t my .11nd.,

cf the


It c..,a71. put P.11

ths. rTestige behrd this 7.,te

which would be necessary to ock the Cute* Central banks. It would
secure the good will of the Clearing House banks, and itHwould


-9'open the channel for a constant stresm of new currency into Cuba,

'bill a r..fve supply coull be kept either with the ac:ency, 71 with
the branch at Jacksonville, from where it could be shipped within the
shortest time In of need. It would eecure all these resu:Its
the Federal Reserve 3ystem into foreign oount.r!es
with orgn.1v-,tiors of its own. The power to deal in (mble trnsfsro,


to the tc.-orcy; also the rower to buy dc,7te.T.tances In cr4se

emervncy, but 7 do rct be7leve it would be necesary for these
:wers to be vicd of 1n order to the currency ciroulection
the currency rewerve question, which are, after Cfl., the
whole t!roblem that the Ronrd is trying to .solve. I wrote these cug-

geons to Dot-r illor immedistely upon my return, but
jIci'F., to the results.




Mey 5, 1925.

Dear Her

am sorry that our views evidently differ with regard
to your Cuban plans. Our talk over the telephone yeeterday brought
back to my mind the very lively discussions we had about this topic in
September, 1915. 1 pulled out of my old files dome drafts of reports
which we prepared daring those days. You wlil, of couree, recall that
in September, 1915 Mr. McAdoo wrote to PreAdent Wilson, suggesting
that Federal Reserve Banks establish agencies in South American coune

tries, his thought in those days being, that the Pederal Reserve Beffee
could render services in thoae countriee whioh Americon private capital
Was not willing or able to render. You remember, no doubt, that the
Board abeointed a committee coneisting of 1)elta/0, yourself, and myself,
and that we prepered a reeort which took issue in the most seAthing
terms with Mr. McAdoo and the ?resident, who bed meenveni;e endorsed

You will eleo recall the unanimous support thet
the press gave us in our fight to keep the Pederel Reserve System within
its proper bounds. Before MoAdoc published his letter, and before our
oemmittee wrote its report, I had been invited by the Board to yrite
a report for McAdoojewhich was in his heads before he published the
Mr. McAdoo's scheme.

President's lettr. I find In my pepers a copy of this reeorts end I
am sending you a copy, because as 1 did then, I Ells* want to insist today, that the expression that the Federal Reserve Banks might appoint
correeeondente or timc_Lies in no wby wee meant to convey the power to

establish what, in fact, would be branchea of their own in foreign
countries. I believe I may apeek eith euthority, at leeet tis to the
intent of the lat., beccuse ks I etated in that eemorandum, it vms I who



We are opposed to the principle of the establishment of a

direct agency of a Federal reserve bank in Cuba if any other means can
be found of aeoomplishing the desired results;


Because it renders some of our assets subject to
the Jeers and the courts of a foreien country,


Between of the expense invalved in an undertukine

which is not the responsibility of the Federal
Reserve System.


Because it createe a precedent for the establishment of direct agencies elsewhere,


eeceuse it raises the question of the responsibility
of a Federal reserve bank to redeem in a foreign
country In gold or lewrilreey. any or all
Federal Reserve netes that ray heenen to circulate
in that °pantry. The law provides that any
Federal Reserve note (regardless of the bank of

issue) may be redeemed in gold or lawful money
at any Federal Reserve Bank, and a foreien agenoy
would in all probability be considered the
Reserve Bank in law, just as mush as branches in
this dountry are. Consequently if the present
application is approved and the Federal Reserve
Bank of Boston sot:1)11i opens its awn offiee or
agency in Cuba mieht it not be expected as a
matter of law "to redeem in old or lawful money"
all of the Federal Reserve notes now airaulating
in Cuba, estimated to be weil in excess of

es a practiced matter it would
Of course not be feasible for a °Mall agency
always to be prepared for redemption un such
large scale.


use for us with their guaranty prime bills in their markets, and likewise,
on order, we will purchase for them with our guaranty prime bills in our

To each of these agreements all other Federal reserve banks,

in accordance with Section 14-11, have been invited, to participate and have
done so.

We are opposed eenerally to the idea that a Federal reserve bank
should conduct a foreign exchange business in a foreign country merely
Dir_thELEelgillyALDEI. We are opposed seecifically to the idea that

a Pederal reserve bank should conduct a foreign exchange business in Cuba

merely for the profit ineolved:


Because there is no important international

credit movement between Cuba and the enited

states to be stabilized, and if we are correctly advised, (except in times of crisis)

the fluctuateans in exchange are limited to
the cost of shipping cerraady to or from the
United States, say 1/6 of 1%.

Because such business could be done only in active competition with member and other banks
with ample resources, now engaged in it,


Because of the risk involved,


Because the paper or tes contracts purchasee
would riot have the number of names equivalent to
those to which in the United etates we restrict
our open market purchases of bills, (i. e. two banking names),

Because it is a proceeding for which me believe there
is no precedent in the exeerience of other important
banks of issue.

- 2 -

The application,

establish an agency


therefore, takes

the form of a proposal to

Havana for the purpose of dealing in exchange,

presumably for the following two reasons:


In order that it may comply aith the provisions of
Section 14-E under which such an agency may be established;

In order that by dealing in foreign exchange the considerable expense of maintaining the agency may be met.


3. We have always been opposed, and we believe the Federal
Reserve Board has held a similar


to the idea that a Federal re-

serve bank should deal in exchange in the

United States:

Because the number of dealers and the supply of
capital engaged in foreign exchanoe dealings was

Because it would put the Federal reserve banks in
direct oompetition with member banks in all parts of
the country who have highly developed exchange departments;
Because of

the risks involved.

With respect to dealings in foreign exchange by Federal reserve banks in foreign

countries, it has been oar belief that

14..:E intended to provide not for the establishment of



oies in foreign countries but for the appointment of banks




countries as correspondents and agents of Federal reserve banks. ThrJugh
these agencies, the reserve banks, when sueh a

could purchase bills in foreign countries

course seemed desirable,

for the purpose of assisting

in the stabilisation of international gold movements.


We have, there-

the avproval of the Board, entered into ageneJ agreements

with a number of foreign banks of issue whereby an order they will purch-

WITTREAS, the Federal Reserve Bank of B .ston has petitioned the

Felerel Reserve Board for authority to establish an agency in Havana, Oteel,

under the oreAsione of Section WeLlf the Federal Renerve Act:
BT. PP Marti) BY THT MAHAL RTMTT BOARD, That said petition

is hereby granted on the following tore and conditions:
(1) The Federal Reserve Bank of Boston is authorieed throuoh such
(Whine of exchange drawn on,and under
agency to buy, sell and collect(prime b=knkers/ acceptances
credits granted by, banks or benkers ), payable in,dollers, which arise


out of actoal import or exoort traneaction4(s have not more than 90
days to run, exclusive of days of grace, bear the signature etwo or
more responsible oarties and are amour& at the time of


by ahie-ing documents conveying or securing title; and to exercise snob
incidental powers as shell be necevserry to the lperation of noch agency

includingte ower to buy anl sell cable transfers.
(1) Upon the request of any other Federni reserve ben4, 'the Fed-

eral Reserve lank of Boston shall moka arrangAmonts whereby notes orginelly

issued by enco oth-r Federal reserve bank ab41111 nuld Cuba through

such agency as bereine-er provided such notes to be delivered at such
agency in Havana by the iesuinq bank at its on expense; provided, however,

V-eat if, after reasonable notice, other Feleral reserve banke shall fail
to keep an adequate eun,1/7 of their Federn1 reserve notes at the Havana
agency, the Federal Reserve Bank of B)stonTaln its discretion, pay out its
own notes through such agency.

(3) Inon application of any

Feieral reserve bank desiring

to pay out its own Federal reserve notes in Cuba, the Federal Renerve
Board will authorise such bank to appoint said Cuban agency as it


agent, and the Federal Reserve 3enk of Boston shall acquiesce in the alp.-

pointment of snoh agent as the egent of anch other :Federal reserve bank.


(4) Such agency shall not pay out on behalf of the Federal

Reserve Bank of Boston any Federal reserve notes iosved by other Fed-

eral reserve barfts and all such notes patl out by such agency shall
be paid out only on behalf of the Federal reserve bank through which

thevleere ori7inally issued.
(5) The establishment end operation of such agency and, the

exerciee of all the above lowers through such agency, Ora/ be subject
to such fnrther mules and regulations as the Federal Reserve Board may

prescribe from time to
The Federal Reserve Board expressly reserves the right

to revo'Ae it

consent to establish such agency and to revire the dis-

continuance of ouch agency wheneier In its discretion it coneilers it

desirable to do so.

The Federal Reserve Bank of New York desires to present its views


following considerations in regard to

Federal Reserve Board by
sion to establish an



application to the

the Federal Reserve Bank of Boston for permis-

agency in

Havana, Cuba, under Section 14-T




While for reasons set forth in this

to any Federal Reserve Bank

memorandum it is opposed

establishing an agency in Cuba, nevertheless

if the Federal Reserve Board reaches the determination that

an agency of

a Federal Reserve Bank should be established in Havana, the



serve Bank of New York would prefer NOT to be selected and could not

Federal Reserve

therefore object to the selection of the

or of any other

Bank of 'Boston

Federal Reserve Bank.

before the Federal Reserve

At the hearing on this subject

on April 30,


1923, it appeared that the

Improve the quality of the

peared also that branches



was made primarily to

money now in circulation in Cuba.

of American banks in Cuba, as well

It ap-

as other


operating there, might, if the agency were established, feel justified in
carrying a much smaller supply of currency than at


Our information

leads us to believe that the banks would thereby save many hundreds of
thousands of dollars.

It further appeared that it might be ultra vires for the Federal
Reserve Board to grant an application for the establishment of an agency
for currency purposes alone, since Section 14-E does not include carrying a

reserve of

currency, and the issuing and

purposes for which a Federal
foreign country.


of currency among the

Reserve Bank may establish an agency

in a

drew that olause for Senator Aldrich, and euggested thee ideas to him,
and the Federel Reserve law took over this clauae from the Aldrich Law
practically verbatim.
non you have a brad, or an organization of your own,
you needn't appoint an agent. Thene agenelee, or correspondents, eere
to be foreign banks or banking firms, that were to act in that capacity,
and if my memory does not fell me, the arrangements which were made with
the Bank of England and the Banque de France, were called nagency egreeeente. The law wAs very careful to prescribe exactly what Et Federal
Reserve Bank might do, and what a, branch might do, and how the currency
issued by the government was to be handled by Federal Reserve agents,

their assistants, etc).
Is it conceivable at ell, that if the lax- had oentemplated
Whet, substantially, is to be a foreign branch, which is contemplated to
hold large sup7lies of reserve currency, it willingly would here omitted
any sefeguarde or detailed instructions at to hoe these foreign branches

end, moreover, is it not, therefore, a bold step, that
where a Federal Reserve Bank le distinctly reetricted to its owndistrict
!Nen) to operate?

within the United Stateel it should have power to open branches wherever
it pleases outelde of the .United States? You may say that you do not
contemplate opening a brano4 but only an agency, but when the Federal
Recerve Bank in Boston has in mind to estab:ish an office of its own,and
to have officers of it own in a foreign country, which have the power V:
engage in open market trenatotions, buy eheoke, cable tranefera,beekers'

acceptancee, it is to all intents and purpoees a branch, and these officers must have the power to pay out currency, to receive currency, to
drew checks, to meke transfers, to order payments, and all kinds of other
transactions which would obligate the rederal Reserve Bank in Boston.
am IN bald man, but my hair stands on end when I contemplate

*hat the esteblishment of euch a principle irely men for the future of
the Federal Reeerve System. If the Federal Reserve Bank of Boston can go
to Havana, why /should not the Federal Reserve sank of Atlanta go to Porto
Rice, Dalles to Peneee, See Frencisoo to the Philippineel end whenever
any South or Centrel American country might decide to use our Dollar note
as A means of circulation or legal tender, the Federal Reserve System would
be warranted, iE that ouzo, to open branch, or agency, or whatever you
may call the thing, - in any case a banking meohine of its- own in such a
country. Though I am not a lawyer, I fail to see that the law provides
that LusrisiNIT beve any right to isrue currency. The lew provides seeolfically for certain merket operatiens, end there it ends. I do not

want to stress teat point, but / ender if it hna been sufficiently eituAre these agencies also to redeem currency? And howl
11 of these are pinta of principle, which you know are very
sacred to me, and on .hich r, for one, have never been wiliin to compro-



That is why, very regretfully, I find myself unable to side with

you,much es '1 would like to do so.
Now, as to the question of Cuba.

- I grant that conditions

in Cuba are exceptional, and call for ell the sympathy and support that
we owe give. My only criticism is, that in your desire to be fteloful you
embark upon a scheme, in which I believe you are leaking in legal authority; which, I think, involves e dangerous preoedent for the future of the
Federel Reserve Syetem, which if put into operation, will sooner or later,
subject the Federal Reserve System to serious criticism, and, worst of all,
while it is going Isa far, would not be able to go far eneueh to be fully
I understand th t the contention is, that foreign banks opere
sting in Cuba et present, have to carry an unduly large cash reserve of
something like sixty per cent, in order to be prepare & ageinst runs, etc.


It is your thought, if I understand you correctly, that if a suffioient
recerve of currenoy were to be held by the agency of the Federal Reserve
Bank of Boston in Havana, in that ease, these American and foreign banks,
and I &sauna also the local banks, oould relesee their reserve money and
loan it out, and rely on their power to get nurroncy !rum the agency of
the Federal Reserve Bank in oese of emergency. The rodorel Reserve an

eecy would relseee thie currency Against the puce of bankers' acoeyttnoes, bills seourel by shipping document, obecks, or cable transfers. These bunkesst acoeptancee and bine with shlysing :!Jecumonts are,
of course, only aveilable at oertain season of the year, end tea soon ea
the/ ere forthcoming through the regular eoonomic process, they generally come into the market, end are ,premptly d1spese6 of. That, in caee
of amergeecy, there should be a greet resery upply o7 euch acceptances
or bills 660.13 doubtful to 'ate. Bills with shipping decuments have to
move eromptly, and ounnot be kept back as a seeondery reserve in the
halide of the Cuban banks. To buy checks on flee York or Beton might easily lead to kiting and the Federal Reserve Bank agency would no doubt be
careful to buy these chocks only within very eafe liaitattons. The mail

sdventege would be, therefore, to enable 0..7.:me of the banks operatIng in
Cuba by telegraphic tranafer to pey cush into the Federal Reserve Bankiin
Bostenm or say other Federal Reserve Bank, for acceunt of oston, and to
receive eurrency in Cuba upon confirmstion received by the B)eton agency

in Cube that the connyer-vslue had been received in cash in the United
States. In other word, the ability to furaith Cabs xith cerrency would
depend upon the abiltty of these CuOtn beaks or Amerieen brenchee operating in Cuba to provide cash in the United Stetee. That, to my mind, re-

solves itself into the question of ho s far Is tha head office of, let us
ay, the Firet National Bulk of Baton, or the Netionel City Bank le Nes

Iork, willing to liquidate its assets in the United States, or to redis

count with its respective Federal Reserve Bank in order to provide
currency in Cuba.

The effect of this plan would be that the Cuban branch of
these two banks, or of the Americen Foreign Banking Corporation, or

other similar banking institutions could put out its funds 14erally
in Cubs; that no machinery has been created, however, by which currency could be teeen out against Cuban investments, but that the American
investments of the Americen head offices would have to be liquidated or
rediscounted in order to provide the currency for Cuba.
The cuestion arises: How far would the American banks want
to go in this regard? How far would it be safe for them to go, and would

the willingness and ability of a few American banks to use their ore alt
in the United States be an adequate organ to provide currency for the entire lelend of Cuba? That is why I say thet while I believe you are going too far in one way, you are not going far enough in the other/ If
the Cvean currency question is to be solved, some machinery must be developed by venich some Cuban assets may be used as the basis of currency
to be issued in Cuba. I know the difficulties that stand in the way of
such a project, but as long as they are there, we must not fool ourselves
into believing that by a mall auxiliary machine, such es would be furnlsned under your pie'', the problem can be solved. If your machine is te
solve the problem, it cannot stop where you woula have it begin, but it
will in the end have to provide a full rediscount machinery, not only for
American bankers' acceptances, and by purchese of a limited amount of
cable transfers and checks, but by getting knee-deep into the Cuban
The question arises of course: Should that be done by the
Federal Reserve Banks of the United Ststes or by an independent organization such as originally you had in mind? I am strongly of the belief,

eeeL,the latter plan, in the long ran, will be the moat satisfactory, end
that Americ&n capital shoild and will, go into such a venture in due
couree. If the Federal Reserve System is to go into E. scheme of this
sort, I believe it should ask Congress frankly for authority to do so,
but not embark upon so far reaching a scheme upon the strength of the
nethority of appointing "correspondents or agencies", an authority which
had no such thing in mind when originally given. If you will re-read
the oommittee report, which you signed, of January 1918, a report, by
the way, Which was approved by the advisory Council, and a meeting of
the Governors and Federal Reserve &gents, you will find that the point
was aleo made in those days that a mere appointment of the agencies, as
"cAdoo had them in mind, and as you 'ow urge them, might not only prove
inelequate, but they might at the same time interfere with the development of the independent banking organizations. If the Yederel Reserve
Bank of Boaton went into Cuba, it would have to operate aa much as it
could within the limits of its powers in order to make its expenses. It
euld not be long before complaints would be made that the Bank was interferias with the business of the oommercial banks. My own feeling is, that
inasmuch as the relief to be given to Cuba under your plan would depend

in the final analysis upon'the operating credit, and the willingness of
the commercial banks to use it, it would be better for the Federal Reere Rank to operate through these existing banks, or such as would open
ranches in Cuba, and appoint them, if neceseary and desirable, to sot
as agencies for a Federal Reserve Bank.
understand that the National City Rank was aeveral years ago
appointed to act as agent in Cute for the Federal Reeerve Bank of New York.

and if the First National Bank in leeten carries out its plan of opening
a branch in Cuba, it would be perfectly logic:181 to make it the ageecy of
the Federal Reserve Bank in Baton.

Provision might then he made whereby

currency might be delivered in Cuba through these ageacies against

benkersi eoceptences, or purohese of bills, or cable transfers, as you
contemplate, and these egenotes might either be authorized to buy for
account of the Federal Reserve Bank from others (1 am thinking of the
Canadian banks), or in case the question should arise that other Amerle&A banks might open branches does there, additional agencies may be
appointed so as to diem= the charge of fevoritism.

In looking over the draft of the reports vhich we drew in
those days, I find on my copy of October 10th aomo correction& in your

I had written: "It may also be urged that the aotive
appearance of the Federal Reserve Banke in this field may delay the de-

own hanuclkiting.

velopment of Amerloan tanking in the Latin-Americes for American banks
eontemplating entrance therein would probably prefer to postpone action

and to await the davekement of the activities of the Federal Reserve
Banks to reveal their limitetiona or failure". You struck out the words

"to reveal their limitations or tenure", and ineertee instead: "letting
such banka take all the risks of ptoneering and to enter the field themselves after the Federal Reserve Banks had shown their inability, due
to inherent and eroper limitations to compete euccessfully with foreign

While the case is not parallel, there is still a good deal
:our own expressions there that would apply to the present aituation.
am writing hurriedly, and under coneiderahle pressure, an
T have devoted this hour of a. very busy morning to eolong a letter for
ther reason but to give you the evidence of ey real intereet in the MI
ter, and that I am not differing with you lightly, and have, T believe
weighty reasons which, conscientiously, I cannot brush aside.
Alwaya eineerely yours,

Governor W.P.G.Harding,

Federal Reserve Benk,




0 ;















6t,,6 diA



e°'-(-e 4-- V-

471e-e"oie6/7 /(za,,,z_zt,
a dePiti-47














































(rcie,rt "4-;


(e/1?6,6c_ /44,v










( 7a,





72tt_u_-/-x_apv 4

le,tr4 v




tea( 4oz_i


Copy of handwitten letter


May 23rd 23.

17 East 80th Street

Dear, old Ben
I got your two nice letters of the 17th. I found them on my return from WAshington
this morning. The one for Nina I read to her this afternoon and she was quite touched
by your fond thoughts of her and sends you her very affectionatest greetings. She is
getting along beautifully and will be permitted to get up for the first time in a day
or two. We all were, as you wished us to be, confident and brave, trying to equal her
One could not help being inspired by her example. The doctors say that her
will and pluck was a tremendous help to them and to her.
Now to your second letter (which I tore up). It am dictating a memo about the
conference on the 21st + 22nd, and that will give you the high points of the story.
I wish I had the time to give you a full account of the side-lights, or rather the sidedarks.
Oh - what a miserably small lot of men they are nowadays:
Crissinger made a bad debut; his expression is insincere.
James, the new man, struck me very favorably.

A Jesuit and politician.

Dawes I could not size up. He may be all right. I fear he will be to Prest. Harding,
as Hamlin was to Wilson + McAdoo. First impression is; opportunist, smooth and lack of
strength + convictions. But that is a very superficial prognostication, subject to much
checking up. Cunningham, the former member, was not there. Miller is king-pin, and
doing the talking in the meeting and the whispering to Crissinger.
Mellon, charming
and touchingly human; but not in.dt at all. A dreamer and Parcival. I cannot understand how he.made his success in business.
That is the background. Harding appeared before the Council, as both Aiken +
his substitute got cold feet. Harding made a pittifully poor impression; when I
cornered him, he tried to be evasive, and when I tried to pin him down, he became
abusive. I had to tell him that if he could not argue his case without trying to
impugne my motives (against his better knowledge) we would have to stop. Then he
behaved; but his case collapsed woefully. He submitted a substitute plan which is
practicable, but (I am sure) not acceptable to the Board, because it might be construed
as helpful to the banks. They always are afraid of that. They want to appear to
compete with member banks rather than to help them.
Even though the latter might help
the Board to attain its aims. Well, my memo will give the rest of the story. I must go
to bed. my correspondence just now is immense and the days are too short.
All good
wishes, old man, from all of us.

Yours as ever










a,/ kta.,,4'

7-1, 74.0e










1--" "



z)-2-A71-170 zezd-V;







)267 z











1--" "



)267 z




z)-2-A71-170 zezd-V;















e'eci- de-,(AX



4)1-4 -et-&;/


Copy of handwritten letter
17 East 80th Street
Dear old Ben,

I assume that while it is "sweatty hot" down here, you sit in the cool mountain
air and have the laugh on us - old scoundrel:
I have seen a good deal of Case + jay and we have had our heads together about
the[?]-Cuba. They also showed me your letter and, inasmuch as they were writing you,
I have kept off in order to avoid confusion.
The matter is now stewing. I am assured that Boston + Atlanta will not agree
on a joint agency and if the Board finds that the joint agency scheme won't go through,
they are likely to come back to my plan.
I am waiting for that and hope my diplomacy
will not miscarry.
In any case I would not know how to do better, for the Board does
not listen to reason but acts as if it were the Reparation Commission. Dictators:
That seems to be Crissinger's tone anyhow. If so he is riding for a fall. Meanwhile
there will be some black eyes.
To tell you more cheerful things. Tomorrow I hope to take Nina from the hospital
to our country place + and to hell with the F. R. system then: She is going very well
Tiarks was here and has sailed back to London.

They have big plans - rather too big, and I think they are likely either to
modify them quite a bit, or they may bump their noses.
I like Tiarks very :uch and
also Bruno Schroeder, and I should be sorry to see them make a mistake. By the way,
where is that son of yours? I should like to see him again.
Otherwise there ain't no news.
I am hot and sleepy and wish I were in Colorado.

Lots of love from the ladies; Betsy passed her first year medical exams; Jimmy
will sail for Europe in 2 weeks.

Yours moistly
[signed] Paul MW.

June 7th 23


June 28, 1923.

Dear Ben:

I don't just now recall whether you owe me one
or I owe you one.

In any case, I want to write you

little%so here goes!


Let us have the good news first.

Nina is fine, and sends her best love. She said
she was going to write to youi but that is one thing that
is still pretty hard for her, so I suppose it may be a little time till she gets to it.

I am delighted to have Ben, Jr. come into the
I. A. B., where we expect him next Monday.
give me greater satisfaction
factory career here.

Nothing would

than to see him make a satis-

I had a chat with him, and found him

a very much changed human being since I saw him last. He is
a very attractive chap, even though he reminds me of his father, particularly when seen from the back!!!


liked him, and so I hope the step that he is about to
will prove to be one that you won't have to regret.



/ Now for the unpleasant part! - I see from the papers this morning that the Federal Reserve Board has "gone
and done it".

I tried my darndest to keep them from doing

When I found that Miller was not making any headway,I


talked to him over the 'phone, and secured from him his
consent to let me submit the plan to Governor Harding,
which I did over the 'phone, with very unsatisfactory results.

I then wrote him a letter, and sent a copy of that

to Crissinger.

I also wrote to Gilbert, and enclosed a let-

ter to him, which I had meant to write to Phillips of the
State Department, but which, after mature consideration, I
thought it would be inadvisable for me to write, but asked
Gilbert instead to take it up with the State Department.

Crissinger wrote a very courteous note, and asked for more
information, which I gave him.

Harding wrote a long reply

(rather truculent), but ended by asking for a more specific
statement, which I sent him, - all of which can now go to
the crematorium!

In nny case, I know that I have done all

I could to stop them from committing this blunder, but "whom

the gods wish to destroy"they do not strike with intelligence.
I am afraid the Board, as it proceeds now, is in for a lot of
trouble, but that-is small consolation for those of us who
wish to see the F. M. System succeed.

7a-7-a-0 kazr

-1(1`44 4-46-46

It is significant, that about two weeks ago, the
First Federal Foreign Banking Association asked the Board for

permission to issue debentures and make acceptances at the
same time./ The Board asked the Advisory Council for a report,

and we immediately informed the Board that we thought such a



against all practices and traditions, and

entirely undesirable.

Upon inquiry, I learned today that

the request of the First Federal Foreign Banking Association was granted!

I am looking forward with a greet deal of pleasure to the next Advisory Council meeting, when I shall take
the liberty of cross-examining a few of these intelligent
men on what grounds, and with what objects in view, they have

I am very much tempted to4Start somethinein the pub-

lic press with regard to the Cuban affair.

My only concern is

that I think it is dangerous and ill-advised to rock the boat,
which is shaky enough as it is.

I have kept in close touch

with Jay and Case about everything I have done in this unfortunate Cuban matter.

I would send you copies of the corre-

spondence, but it is only a post mortem
worth while any more.

anyhow, and hardly

To go to Secretary Hughes in the mat-

ter,I believe, would only have irritated the Board, and made
matters worse for the future.

would have done any


Moreover, I do not believe it

The Secretary of State is devel-

oping an unfortunate liking for a comfortable seat on the
fence, and I think it would have taken a piece of dynamite to
get him down from it! That kind of business I had rather leave
to people more expert in that line.

New York does not look very cheerful just now,
and the people who are having the best time are the gossips.



Apparently the Stock Exchange just now looks very much like

Colony Club!

I assume that Case and Jay are keeping

you advised as to all this
over pretty


nonsense, which I hope will blow

For swinging from one extreme to the other

rhyme or reason"

no country does better than we.

With no more for today, and with all good wishes
from all of us, I am
Always co dially yours

Benjamin Strong, Esq.,
Cragmore Sanatorium,
Colorado Springs,


fr,L_ 14d,r r6..(444 &2,,age:



A, a,t..r,Ixe,,,o/Yr/4r-







4Vef-te-. 07;,; a

66,-t 4,

.1.47zi,r ii /zA.

4,0 az( 14-bu,

"14.,/ 6)44z.


4/4 47h4'





fie ea,ate.

7' edr-4-4Avirz,a,





7tit4 Ite7






W(2/-' /7,

.g-,1" L-02,0 7:14.4











fie ea,ate.





.g-,1" L-02,0 7:14.4

W(2/-' /7,






7tit4 Ite7






7' edr-4-4Avirz,a,


4/4 47-

July 4th 1923

Copy of handwritten letter
Hartsdale,Westchester County, New York
Dear old Ben,

OUT last letters crossed; and we, both of us, wrote about the same subject: your
boy. Since then he has entered the I. A. B. and I saw him for a moment in order to
It is a pleasure
wish him good luck. What you say about him is written on his face.
to look at that expression of kindness straightforwardness and purity. So, dear fond
father of a very dear boy, you need not be afraid that you are blind as all fathers
with regard to your son. I hope that he and Jimmie will hit it off; I regret that
for two months the latter will be away in Europe. Meanwhile Ben will find his bearings,
which is not bad at all.

The last paragraphs of your letter made me smile much amused mile.


not a sarcastic, but a very

How often have you said to me that it was my evil doings that landed you in that
desperate job you have been afflicted with these last 8 years? How often have you said
you doubted whether it was worth while to go on with it?
(And God knows there has
been enough bstification for all you said:)ButIt::::: If a father as fond as you,
when all is said and done, thinks that after all he would wish his on to continue
where he would some day leave his job + there must be something in it worthwhile the
effort:. Q.e.d. and I am damned glad it sin so. So don't you try that sort of stuff
on me again - I know better now.
Nina is fine. We expect to go to St. ruldrews(New Brunswick, Canada) by the end
of this month for 5 to 6 weeks, and that, I trust, will give the finishing touch to
her recuperation.

Both my womens send you their best love.

Ever yours
[signed] Paul

_74 zze-i.e
L7a-f-aizr 4t,0 4- %(t










4 /21.A0,4_


4 /2-4_e_ /ft-, feetd_e





araeat, d-(7 he-Pf4,-4-4 az,;









14a A/A-1,2-4/a_elmek ij 4,44.

- 4/-4;61,k,


4 /4.4.:rey


Xei(Awier 4/),

24E4 Qst_

otat /AA,:




(e-e-et 1r;A, d4t

li)(6 Ate4dd-,,


ir-z* ,aces t'Me





,42A-Z 4._ga


lituv}if &26






ork (64_, ad k












/7/44A w.te7Liw.:





de,A (,,ze,c,././, /ft_


//eayzi,,a_ (v.e(2-4




i' ige/4







ite gmalzath4,,



1-e--w tee#,/




















ad--4-(A/fr tf/ig(1->rx,,ea-





V AA2(


41- el,

%a' 4-1/,'Le9tfri

i766, 447a
r 6ree_ 1V-ec-,,Lithv 4re Iget4 eiga.:
a#4 Artt,_,



Copy of handwritten letter
Loon Lake, Sept. 3, 1923

Dear Ben,
Wonder where you are'.

Friday I leave, to
We have been for 3 weeks at St. Andrews and one week here.
go back to New York, while Betsy returns from a rough camping expedition near Moose
Head Lake to take my place as watchdog over Nina. The latter is gettin along beauShe is better than in years. That is just the reason why she needs a
policeman. I have not heard from you in 2000 years how you are getting alone. Drop
me a line, old man'.

My vacation has been much reduced, in time and pleasure, by my reading H. Parker
Willis' book - "The Federal Reserve System." I always knew the fellow was a skunk;
For those of us who know, the story is funny
but he turns out to be a superskunk.
and makes Willis' look like, what he is, - a mean, petty, jealous, venomous flea,
who believes that he knew it all, + did it all, and that anything anybody else ever
did must be shown up as either not new, or no good. But the flea bites are distributed with such queer and unaccountable passion. Some people like Hamlin + John
Skelton (of all people'.) whom he loathed and despised) he treats with curious
generousity - while you and I are, I suppose, his main targets. That, however, is
fairly indifferent. What is more serious, is the fact that for politicians and economists
this vicious stuff will serve as a hand book, containing authentic information, and it
True enough,
may be used to bedevil the situation, which is none too safe as it is.
only few people will work their way through these 2000 pages; but they will find some
convenient pages to quote against the system whenever it will be convenient. Trust
Owen, .Ladd + Heflin for that'.

I think the book ought to be answered; not in 2000, but possibly 200 pages. What
I wonder whether he had any authorization from the Board to publish the
say you?
confidential memoranda; and if he had not, and I am sure he didn't, how could Glass
write a preface to such an outpouring of unfair indiscretions?
a sorry person anyhow. I think he actually collaborated in this whiteGlass
wash and glofification of his own dear little self. The point of contact between the
two is their bottomless prejudice against banks in general, and Ndw York bankers in

The funny thing about thebook is, that an intelligent and unbiased reader, if
such an animal exists, cannot escape the conclusion that Willis has proved the case of
those who warned the framers of the F. R. Act of the dangers of over decentralization
and of too much government influence in appointing the Board and making this semipolitical body, technically, the only link connecting the banks, a mongrel body at that,
half supervisory + half managerial. But few will be intelligent enough to see that
unless we make it clear to them.
What sayest thou?

I say H...Y

Yours always
[signed] Paul mw

I have not seen Ben jr for 6 weeks; when I saw him last he liked his job, and everybody
liked him: I do.


September 17, 1923.

RECOMMENDATION No. 1. The Federal Advisory Council has considered
carefully the letter from the Undersecretary of the Treasury to the Governor of the
Federal Reserve Board dated August 3, 1923, suggesting a certain differential between
the rediscount rate for commercial paper and the open market rate for bankers' acceptances and approves of the principle, but is of the opinion that the time is not opportune to increase the existing differential rate to the extent suggested.

RECOMMENDATION No. 2. Recognizing the great importance of the development of the acceptance market and the market for short term Treasury certificates, the
Federal Advisory Council recommends to the Federal Reserve Board, if possible, some
legal plan be adopted whereby the Federal Reserve Banks may extend accommodation

to member banks and corporations or firms dealing in acceptances and short term
Treasury certificates by the purchase of these acceptances and certificates; and in the
event of resale of these securities to such member banks and corporations or firms,
proper compensation should be exacted for the service rendered; but these transactions
should be confined to acceptances and short term Treasury certificates and should not
include United States bonds or Treasury notes.

RECOMMENDATION No. 3. The Federal Advisory Council having heard
Messrs. Claiborne and Adams in support of the so-called Claiborne-Adams check collection plan and the recent amendments thereto, is of the opinion that the plan is unsound,
and therefore unanimously recommends its rejection by the Federal Reserve Board. The

Council concurs in the essential objections to the plan as set forth in the report of the

Advisory Committee of Governors of the Federal Reserve Banks to the Federal
Reserve Board dated August 1, 1923.

RECOMMENDATION No. 4: The Federal Advisory Council has considered
the effect of Regulation J, Series of 1923, and recommends that it be amended as follows:
To provide that Federal Reserve Banks shall receive at par from member banks
and non-member clearing banks in their respective districts, checks drawn upon member and non-member banks that are collectible at par in acceptable funds ; and shall
receive at par from or for account of other Federal Reserve Banks such checks payable within its district. Collectibility at par may be established by an agreement of a
drawee bank to remit at par in acceptable funds or ability of a Federal Reserve Bank
to make collection at par through another member or non-member bank.

To provide that Federal Reserve Banks shall not receive upon deposit checks
upon any non-member bank which are not collectible at par.
To provide that Federal Reserve Banks shall not charge exchange upon checks
drawn upon a member bank deposited with a Federal Reserve Bank, which checks are

drawn by, endorsed by, or which emanate from any non-member bank which does
not remit at par.


Form 1204




Ifni.. ...

these three symbols

appears after the check (number of
words) this is a telegram. Otherwise its character is indicated by the
symbol appearing after the check.

TEL -tt AM








Day Letter


Night Message


If none of these three symbols
Night Letter

appears after the check number of
words) this is a telegram. Otherwise its character is indicated by the
symbol appearing after the check.



October 29, 1923.

Dear Ben:

This morning's "AnnallAff carries an interview, which I was request/to give, upon the subject of the present prob

The *nterview is no more than a re-

serve System.

statement of view

I am v

ms facing the Federal Re-

expressed by me on earlier occa-

turing to send you a copy in the


it might interest you to give it a cas-

that, possi
ual glan



With kindest regards,

erely yours

Benjamin Strong, Esq.,
470 Park Avenue,



NOV 3 0 1923


November 28, 1923.

Dear Ben:

Enclosed is adraft of my annual address to be given before the Acceptance Council,
which it may amuse you to read.

I was sorry we

were interrupted yesterday, but I am looking forward to a continuation of our talk at an early

Sin erely yours,



Hon. Benjamin Strong,
Federal Reserve Bank,
15 Nassau Street,
New York City.


This article is protected by copyright and has been removed.
The citation for the original is:
Warburg, Paul M. “Politics Menaces the Federal Reserve System.” The Annalist (New York, NY), October
29, 1923.



December 3, 1923.

Dear Ben:

Thanks for your letter, and for having
read my paper so carefully.

I am glad to have your


I know it will be hard to get Congress
or the Treasury to agree to a tax exemption, but I
think it is right to put the matter up to them in the
manner I did in order to bring it out into the open.
I have arranged with your son that you
will come and dine with us on Monday next when


Traylor of Chicago will be the only other guest.


am sure you will like him, and I assume you know him.

Ben Jr., unfortunately, has a swagger appointment for
the Metropolitan that night, which I regret,
hope to see him some other time.

but I


You suggestlithat increased open market purchases in Certificates of Indebtedness might do some

buy enough

I am afraid it is no help.

You could


to reduce the rate for Certificates, and the

only consequence, therefore, would be that





ease the banks which, in that case, might, conceivably
at least, increase their purchases in commercial paper
so that the commercial paper rate

might be decreased

further, and the anomaly of having the commercial paper
rate and the acceptance rate so close together would,
therefore, be aggravated instead of being eased.


the other hand, the open market rate for acceptances
would not go down as a consequence of easier money,be_
cause it is fairly well linked to the Certificates of

Unfortunately, we find ourselves in this

vicious circle, which can only be broken (as I see it)
when the tax exemption for Certificates of Indebtedness
is removed, or if tax exemption is granted to bankers'

I hope you will use your persuasive powers
while you are' in Washington to carry this message home

where it will do some good.

I am looking forward to seeing you soon again, and am, with warmest regards A'rom all of us

Always sincerely yours

Hon. Benjamin Strong,
1718 H Street,
Washington, D. C.



DEC 2 7 1923

December 20, 1923.

Dear Strong,

I enclose a cony of a letter, which I have
written to Mr. Winston today.

If you have time to

May be we

give it a "look-over, I shall be obliged.
can put our heads together concerning the

that I

several topics

have dwelled upon after the Xmas rush is over.

good opportunity to send
which the Warburg family is

Meanwhile, this is a
you all the good wishes, of
full for you and yourIn!

ncerely yours

Hon. Benjamin Strong,


Reserve Bank,
15 Nassau Street,
New York City.



December 20th, 19?.

Dear 110. 7inston,

Men Ihad the pleppure of sectr?y.0 laet In
Taartngton, we dlecussed the problem of the ttoc,aptance
msrket, es 2mu Tey recello I act' sto you then tl,,rt
either th,t Treapury Certiricetee and Notes wbcold be

plscel on * taxable baate, or acceptance! phou14 te cl.teed.
on. a tax-exemlA basil
hP1e. by banks.
1 have mince elaborated this, thnught in an e412

drez, rbloh it wav II painfolAuty to deliver at the annuEl me,AInT of trhe AmeTtcan Acceptance Council, and I tske
May I ask you
the liberty or enclosing e, copy hereidth.

kiclly to read vhat I have ti concerning thip toA,c wad
iv' it your very eprrest and, ea Iho7a, symr4itetic COAoi°4,eration.



ro you retliz that for about t 500"0.- a year

yO2 oan make the AxprIccr bark.ir7 lyptem t mincers end rut
Uuclt Scm or the me ea the real rroili Rarkerf' vttb a fair1y t;:erfect machine? To my mini, it IP clearly our tduty not

tc ncltr,t our op;oTtuctty of i A at,T(Akf bwrking orgeo1Jrfp,r
,tinn *11 tht more au At every month and year tbat peeper

heavier recralbility or UP In this regard.


wInnot be the holders of til the World's gold en6 become
the gold axis of the World wtthout doing, uur obvious duty
in making CAIT banktrq, llachtnery funottor Is well at leet
ao i lies in our power to make tt.
per you will find that T have figured
In my
out that, if via have a normal volume of acceptances outstnlng of t 500000,000.- an a dinoonnt rate of 4,1/6%,
the taxable Interent involved would be about t
This return In the hands or the banks would be subject to
the tnx of 12-1/2%, which le Approximately 2.6 MillIon p.a.
Apprclximataly one heir of ali acceptances sre held by the
Federal Reserve banks; they do not pay the tax. I should
guess that betweon 75 - 100 4il11ons ere //elf' by foreign
banks, most of which do not pay the tax, end it in eftfe
say that more thr.:n 50% of the balance is hold by savings
bP.,nks, which are not subject to the tax. It would be conservattve, therefore, to Resume thnt rot more than one fourth or
one tifth of all ban'Keral toceptnnoes te actually charged
On the other handtax prevents the banks
with the tax.
from in/tering the rtall and, thereby, destroys the effective
cooperation of, vb.:at should be, the most important factor
in the ncosptance market, and it rrevents acnertancee from
getting the lower Interest level, which Jetishoull command,

kNOWLFIY/E0 31 Pi".



The propositin thst T hsve in fend /s, whnt
in .elnne we woulA

Thl Trataary v7.114'
mhova .t.secn qnd three thet

n "aAnchn.

,,!,:thina for

beive outlined in oy otpar, *bile the benefit would be
ims.erlEa, but tan only be ludge4. by those "-he ere c,'nablo

vieuallving tht poteibi:Itlue eu4 umoespitit, 4'4f our
-Av .j I 've
have,not written Feorntery Velles-slibrt tqk
ini tht you will be my e4Wote %ith him. In
, wry I exk you ale° to te71 him
a ganuin


hotion it ,was for hit friende to he nrasont et the linner
givem to him by the Per,.,eylvnt 10,710ty t!,,r ckler right
to ret' the p rofounl !inecreit otthe oestion thst VPN

,:nderad him.' vit ribr e reel ineriratior to see thet .71uty

fue.A.lesuly der, ithout any selfish thought, can command
the edmiretion nnd support of n Democracy generally surposed
to bo onuetle only to follow the claptrap or the Demagogues.

Sincerely ycnre,
&Jared Reserve Bart.
NaPFall Str4,

on. Garrard S. tineten,

AebfftAnt fleorett.ry,cf 440'Trerrury,
rafbington, D. 'C.







JAN - 2 1924

F/ St

December 28, 1923.

Dear Ben:

Thank you for your note.

Your argument

against additional tax exemptions is perfectly sound,
even though the restrictions contemplated by me would
make it perfectly harmless.

But, then, one should

"take the bull by the horn", and see to it that Treasury notes and Certificates should become subject to 04_,

I enclose copy of a letter received from Mr. Win-

ston, which I am sure will interest you.

Benjamin Strong, Esq.,
Federal Reserve Bank,
15 Nassau Street,
New York City.




December 26th, 1923

Dear Mr. Warburg:

I have your letter of December 20th.

I had already

read your speech to the Anerican Acceptance Council with a great deal
of interest and I had already discussed this question with Mr. Mellon.

As I said to you when we talked it over in Washington, it should be
the policy of the Treasury to reduce the number of tax exempt securities and not to increase it.

They are already the subject of much

Unfortunately the statute under Which Government short

term certificates are issued requires exemption as to normal tax.

would not, therefore, be possible under the present law to make our
Government securities wholly taxable.

The Treasury may, however, con-

sider the advisability of recommending to Congress an amendment to the

law so as to leave within the discretion of the Secretary of the Treasury
whether the securities may be wholly taxable or tax exempt only with
respect to State taxes and the normal tax.

We should like to do every-

thing we can for the acceptance market, but I am afraid it would put
the Treasury in a false light to recommend tax exemption.

Very truly yours,



January 30, 1924.


JAN 3 1 192fi

Dear Ben:

As a member of General Henry T,Allen's
Committee, I have been asked to sponsor their plea

with a certain number of prospects, and your name
has fallen into my lap.

I venture, therefore, to

enclose copy of an abstract of Doctor Emerson's report, which speaks for itself.

I also enclose a

card which please be good enough to return to me with
whatever figure (large or small) that you may feel
like inserting.

It is needless to add that my heart

is very much in this matter because I know how terrible the suffering is over there.

None the less,

be sure that whatever way you may act upon the suggestion,-I shall fully understand and respect your conclusions.

I know how overburdened all of us are along

these lines.

Since ely yours,

Benjamin Strong, Esq.,
15 NassAu Street,
New York City.




reports of Dr. Haven Emerson, of Columbia
University, and Prof. Ernest M. Patterson, of the University of Pennsylvania, who, as unbiased, scientific

observers, were sent to Germany to ascertain the
FACTS OF THE SITUATION for the information of








(Columbia University)

(University of Pennsylvania)

T was unfortunate for my purposes that all the schools were closed during
my stay in Germany, an extra ten days of vacation having been decided
upon because of the shortage of coal to heat the schools.
"Cold weather, with much snow and wind and little sun, prevailed throughout the period of my visit. Public officers were warned in all intsances that only
conservative and well authenticated facts were acceptable. .
"A reduction of the birth rate from about 30 per 1,000 to 15 per 1,000 has

66 0

N such a brief trip, personal observations and conclusions based on
them are ordinarily unsatisfactory. In this instance, however, a few
statements are appropriate because the writer made every attempt to

observe accurately and, still more, because of the close correspondence between
his observations and the evidence gathered in other ways.


"First to attract the attention was the very small movement of freight. Our
route was followed chiefly in the daytime, to gain as many direct impressions as
possible. The writer saw no more than a dozen engines moving freight cars, and
of these one-half or more were merely shifting cars.
Only about a half d
were trains of cars definitely moving from one town to another. There were

not been accompanied by an improvement in the condition of the expectant

mother, for there is less prenatal care, an increase in the mortality from childbed

fever, an increase in stillbirths, and a great diminution in the proportion of

Breast milk is found to be reduced
mothers who can nurse their babies.
to about one-half the usual daily amount. One in ten of the babies born alive in
Berlin is given over to an institution to raise because of poverty of the family.
"After the early weaning, now so common, the shortage of cow's milk and
its expense causes a marked arrest in development and defect in quality, as well
as in quantity of tissue growth. Beginning with six months and even younger,
babies are found in the hospitals in considerable numbers with marked pulmonary

hundreds and hundreds of cars on sidings and in yards, most of them empty.
Engines were cold and tracks rusty.

"Only a few of the loaded freight cars were filled with coal. In Berlin I
saw only an occasional wagon delivering coal in the streets, and it was usually
brown coal whose heating quality is inferior. As 1 travelled through the towns,

It is not uncommon to find 15 per cent and eyen 25 per cent of
children under two years of age in hospitals, suffering from lung tuberculosis.
This has been a development of the past twelve months.
Increase in Tuberculosis
"Five of the municipal preventoria in Berlin with four hundred beds, for

very few houses had smoke rising from their chimneys.

.11,ard the Illajestic on their departure for Germany

pre-tuberculosis of suspect children from tuberculosis families have been

closed within the year for lack of funds.
"In Dresden, at a prominent children's hospital, prior to 1915 they had no lung tuberculosis in children under
three years; today twenty-five of the one hundred and twenty beds are occupied by children of this age.
"The runabout child (2-5 years) is less commonly sturdy than the infant under one, partly because no child
over four, unless in hospital, and in most places no child over two gets any fresh cow's milk, and partly because
of lack of suitable shoes and outer clothing. . . .
"From infancy to school age marked rickets is so common, anemia, listlessness, poor muscular bone, sunken
eyes and emaciation are so generally seen that one loses a sense of proportion and is inclined to underestimate
the extent of depreciation of vitality which is almost everywhere obvious among the children of the wage earners,
the lesser public officials and the 20 to 40 per cent of the adult population who are unemployed. .
"Lack of breakfast and often of lunch, lack of shoes, or worn out or felt shoes, lack of stockings, underclothes, winter coats are all so common that the undersized, pallid, listless, thin children seem but the natural
result. The weakness of children from hunger is a common cause of fainting, dizziness, headache and inability
to study. up to 20 per cent of children applying at six years for admission to school have to be sent home as
From 1 to 2.5 per cent of school children in some districts are found to have open pulmo.
unfit to attend.


nary tuberculosis.




Food, Clothing, Housing

"The best single index, and probably the most reliable material measure of the adequacy of children's nutrition
in a modern municipality is the daily per capita consumption of milk. The cows, fewer in number than before
the war, produce much less milk and of a lower butterfat content and presumably lower also in other vitamin
elements. When, therefore, we find a reduction to one-sixth and one-eighth commonly, and in some instances
to one-twentieth of the milk formerly taken daily, and of this sometimes one-sixth not sold because of the rise
in price, we can picture the results upon children's growth and health. Few, if any, children over four have had
milk in the cities since 1914, unless they were sick in hospitals.
"The use of milk in most American cities amounts to about one-half pint a day for each person. Now, the
people of Berlin have about six-hundredths of a pint apiece, in Cologne .1 of a pint. .
"Three children in a bed and five or six persons in a bedroom are common in city and country. I found a
grandmother, mother and child of three all sleeping in the same bed and all with tuberculosis. Premises formerly
forbidden as unfit for human habitation are now crowded. The children suffer most from these conditions.
"The most that can be given to sustain life for a man, wife and two children under fourteen years of age is
10.5 gold marks a week, or about $2.50, an amount, even when considering the further concessions as to rent,
It must be borne in mind that the period
bread, public kitchens, etc., which barely permits survival. . .
of infection with tuberculosis precedes death by a considerable period.
"During the latter part of 1922, and to a constantly increasing degree through 1923, a change had occurred,
with a rapidity quite explicable in view of the conditions which had prevailed from 1914-1919, which threatens
to become a widespread catastrophe, at least for the children of Germany.
"The harvest of death has only begun. Starvation and disease are whetting the Scythe.
"We, in the midst of plenty, will see our own problems in a fairer light if we cast off our blanket of aloof-

ness. Nothing but an increase of friendliness can come to the Atlantic as an investment in other children's lives."
Federal Reserve Bank of St. Louis



famine conditions.




"Of the many factory chimneys onjy a few were smoking, and there were
many evidences of extensive unemployment. In Cologne I witnessed a demonstration by a large mob of unemployed, a demonstration that for a time threat-

ened to result in rioting and looting. In short, evidence of unemployment
appeared everywhere.

A Change for the Worse
"I was in Germany in June, 1922, when business was still active. The most superficial observation today
shows a change for the worse, a conclusion that cannot be escaped when other evidence is examined. Unless
one is-to distrust his own senses and refuse to accept the testimony not only of German officials and business
men, but that of the highly capable English and American experts in Germanyunless one is to discard all forms
of evidence upon which investigators are accustomed to rely, he must conclude that the distress is acute in the




"Dr. Brauns, Minister of Labor or the Reich, stated on December 20th:
" 'Several municipalities have reported that the number of destitutes is more than half the population. The
Bureau of Statistics in Essen states that out of 251,000 inhabitants in November, 55.5 per cent was entirely deIn several industrial centers in the occupied
pendent, whereas in 1913 the percentage was 1.5 per cent. .


zone, 80 per cent of the population is entirely dependent on public support.'

"In Berlin the D. Z. A. (Deutscher Zentralausschuss fur die Auslandshilfe) informed me that in the week
of November 27th to December 8th they served 545,017 meals per day. What fraction of the need they were then
meeting they were not sure, though one of their officials put it as low as 20 to 25 per cent.
Homes for Infants Closed
"Dr. Brauns further stated:
" 'Hospitals, homes and asylums of every description are taxed to the utmost, but are greatly handicapped
Worthy, respectable institutions have to close their doors. Among those that can no longer
for funds. . .
The number of beds
continue are homes for infants, kindergartens, dispensaries for mothers and babies. .
in the remaining institutions is only 35 per cent of the original capacity. .




our children from a transfer of material wealth

"He also stated that on December 1st, in the unoccupied region, there were 1,447,000 unemployed and 1,825,000 part-time workers. For the occupied area, he gave 2,000,000 as merely an approximate estimate for the unemployed.


"Allowances for the totally unemployed vary in different sections of Germany and with different classes of
workers. The highest amount paid, however, for a worker with a family is 1.56 marks (39 cents) per day. This
sum is being granted at a time when a loaf of bread costs 18 cents.

The Throes of a Crisis
"If inflation should be resumed and prices again rise, it is entirely probable that the mental strain would again
appear, with consequences that cannot be forecast.
"How serious and prolonged the crisis and the ensuing depression will be no one knows. Even were there

no other problems to be faced, if the reparations question were settled and all other difficulties adjusted, conBut there is practically no reason for expecting early relief for the unoccu.
ditions would be serious. . .
pied parts of the country. All Germany is in the throes of a crisis which will probably be prolonged.


IRVING T. Bus, Chairman























Make Checks Payable to

19 West Forty-fourth Street,
New York City.



February 1st, 1924.

Dear Ben,

Thank you for your i/etter and for your prompt
and generous response. I apipreciate it very sincerely,
and I am sure all my fellow-members of the Committee will.

I am enthusinsac about your plan to incarcerate
some of thek dumbheads# around the world.

If you start the

Syndicate, don't forget me as an underwriter!
Sin erely yours,

Hon. Benjamin Strong,
Governor, Federal Reserve Bank ot New York,

15 Nassau Street, City.




Ag-ree ,






4 eL4t,




DATE March 10, 1924.















MR. P. M.





March 10, 1924.

Warmax Hamburg
Yours 4010 participation only interesting if official standing thereby

secured and substantial part


of business on parity with London

mistake for 0reditbank base its operations on fluctuating sterling
instad stable


Believe that Bank's foundation and

at least in

part ought to be sought here believe possible

some credit


him direct

here if proper



opportunity is given us for

Please communicate t



March 14, 1924.

Dear Ben:

The enclosed came
and may interest you.
read it.

in this

morning from Chicago,

Please return it after you have

I should like to discuss the subject matter of

the letter with you before

answering Mr.


Sincerely yours,



Benjamin Strong, Esq,,
Federal Reserve Bank,
15 Nassau Street,
New York City.


Mr. harburg gave me this on Friday and I turned it
over to Mr. Kenzel.
P. j.








21, 3424. 4( vivid

prompt reply

own eyes


4 --.,4 n ,,


se which it is
t is for a baby,

../.*,m just now te

tites are.


4 ilarly responsiv





Dear Mr. Young:

an greatly indebted to eou for ou/ erompt etply
to my clet. Its lasL erds struck e partieularly responeive
chord. I wish I could go over And see with my on eyes what
the problem reeley is, and whet the poseleilities are. Un7
fortunately, however, that is impossible for me just now be her
Wire. Warburg is down with the mtesles, a dieeese which it is i!!=vgnot as easy fo a grand-mother to overcome as it is for a baby,
and her condition Ras given me quite some concern during these
last few weeks.


It ie difficult for me to attempt terexpreiL my
thoughts concerning the problem in hand, or, rather, not in

The opportunity that the present emergency in urope

offers is unique, and I donit believe it will ever be aeftin
within es easy a grasp of the United States' as it is today.
It is the question cit whether the Dollar trail permanntly reLein a eredominant position, or hether we are willing to suerender financial mastery to the Pond Sterlinj for good and

all! England realizes that, and that is whj( the Bank of England is 411ing to ,ee to e con iderable granting

ek *f

4 4t



baron Bruno Schroeder from London, who is here

just now, confirmed that in eis teak eith me yestereay. He said
if the Pound Sterling wiA, good enough for Englend, it

ooti enough for ermeny, and that the Ciermens could not af-

ford the iLeury of havine Dollar exchenge.r

That statement i$, of course, feilecious, becuuse it
is mere of a luxury to have a fluctueting pivot than to hese a
steble onc. -:,:ermany, in ecceptingeSterling e &-te finnciel pikee
vet, woull idece Itself under a hanaice , while if she could nese
her financial system on the Dollar, it would be tveler for her in
the- future to engage in world bueiness, and to comeete with England more effectively. The mein weieht, ho6ever, is not te be
laid on the financial argument of Baron Schroeder, ;:.ut thet for on ads, poleticel and economic, England ha s a larger ob-

ject at stake than w, and that, furthermore, we do not retliz'e
Over eere what a far reaching question ie involved for us in the
matte/co, Persenally, I can envisage, that if through the ectebAahment of sold exchange standards in Eurce:e, many countries

ir reewcves over here, end invest them in benkrs ec,;k6 and elances, the result of that would be the develop.



wide oven discount market, such ae we have been trying
:el vain for five yeara to establieh over here. houever, there
muet be a give and take, and in order to see,ch
mere of


tribution, we would have to be ereeured to grent rediscount facilities just in the same mcnner as the Bank of England has derie.

This is not
ifficult ae it would aper at the eutset.
I on imaeine thit strong syndicete of leeding bunko and

bankers could be formed here whice uould agree to rediscount
substantial numbe of millions of doliere fiajr the note
Iieuire; benk of Germany, provided this per oomplies with

the requirements of the ?ederal Reserve Act, i. e. that it


should bOof a commercial sherecter. It would proeebly be
two nes per, representing the seller and the buyer of
goods, :ndoreed by fpank or bankers, and then again endorsed -J,y the German note iesuing institution. This paper,
eroeerly endorsed by American banks or by the banking syndicete,
could be rediscounted at the Federal Reeerve :e,nk provided it
appealed to it andAthe Board would be wilLine to amend its reseective regulation.
If that proeoeition came from your Committee in connection with a general scheme of straightening out in Europe, I
can hardly ieagine that the Federal Reserve Board would be unwtlltn to play along, and that the leading banks of the United

States eould be unwilling to do their share there it migie be a
public duty, and, et the seme time, a paying and safe business.

I hesitate to write this eketchy letter ebout this at
random, not knowing at all what the actual requirements of the

situation over there are. I hope you eili perdon the intrusion!



-4 -


am venturing to send you these lines simply for the purpose
Iftese idees before you for what they may be worth,
thinking that, Asaibly, they may cover some phases which have
not yet been laid before you. Needieee to ay, that every
thinking 'eumen being ie foLowing with keen attention the work
of your Committee, end the 3eneral feling and expectation is
that when the curtain riaes there may be Every reason to canAratulete you upon what you have abhieved. The possibilitfis
for good are immenee, and we all hope. theta France 4111 be well

aware of the possibilities for evil that she may precipitate if
she should prove too stubborn and too exacting.
With kindest regards, and very best wishes, I am
Always sincerely yours,

Owen D Young, Esq.,

Ritz-Canton Hotel,
Paris, France.


March 28, 1924.

Dear Ben:

I hope that you safely reached the shores of the
old country, and that you are well, and are having a bully

Your "Ben" left a few days ago for a six weeks holiday.

Everybody felt most sorry for him, and we are loathe to

miss him, but everyone went out of their way to assure him that
his place will be kept open for him, and that we will be delighted to see him back, hale and hearty.

I did not see him mvself,

because I have been laid up with a nasty cold, and by the end of
next week, I hope to be able to take Nina South.

She is doing

well, but is very weak.

The object of these lines is to send you a copy of a

letter which I received this morning from Miller, to whom I had
sent a copy of my letter to Owen D. Young and Vissering. His reply is most encouraging, and I thought you would be glad to


it, and, possibly, take a cue from it.


Of course, I am not

miliar with how far you and he discussed this whole problem, and
I may be carrying coal to Newcastle, but, anyhow, I did not want


to miss sending you the letter.

Bank, assuming that


I am sending it


secretary will be able to

on the other side.

Good luck, old man, and warmest regards!

Alway. yours,

Benjamin Strong, Esq.,

Federal Reserve Bank,
15 Nassau Street,

To be forwarded.





catch you


March 27, 1924.

My dear Warburg:

I thank you very mucn for your two letters of
March 24th.

I am glad that you enjoyed reading the Annual
Report of the Board and am pleased that you think so highly of it.
The point with respect to Federal Reserve discount policy during
1923, which you think might with advantage have been emphasized
in the Report, is one in which I think you have perhaps read
the Report hastily and not understood the Board's position. But
this is a matter that we can talk about when I next see you.
I am, of course, greatly obliged to you for
sending me copies of your letters to Vissering and Young. I
have read them with the greatest interest.
I am glad your
thought is proceeding along the lines indicated in these letters.
If I have rightly grasped what is in your mind and what you are
aiming at, it is also what
have been thinking, and I believe
a way can be found by which the Federal Reserve can perform a
very important service and strengthen the position of our country
in the international money market by broadening its activities.
It was mighty good to see you, if even only
briefly, the other day in New York.
I shall look forward to
your being here at the time of the next meeting of the Federal
Advisory Council, when I trust the subject of your two letters
can be amplified and clarified by further discussion.
I am delighted to hear that

Nina is doing well.

Always sincerely yours,

Mr. Paul M. Warburg,
31 Pine St.,
New York City.


(A. C. Mill")

( Translation )


of the



Berlin) S.W.19,
May 31,1924.

Dear Mr. Warburg:

I sincerely thank you for your kind letter of the
15th inst. and take the opportunity of giving you some particulars
in regard to the present conditions, although I am fully aware that
you are kept informed by your brother Max of all developments in
our country.

I may mention that it is a special gratification for

me to be in entire agreement with your brother in regard to the
handling of the all-important economic questions which Germany has to
solve at the present time, and this the more so, because I attach
the utmost importance to his judgment.

By reason of the continued

political pressure from the outside to which Germany is exposed, our
domestic political conditions'have become very much upset in the recent elections.

The turn to the extreme "right" and "left" has been

very pronounced and I am much afraid that unless we find more support
and assistance from abroad,

arid particularly in regard to the impon-

derables", i.e. national sentiment, we may see very serious difficulties in our own country.

It has taken far too long to assist us to

a reasonable settlement of the Versailles Treaty.

I confess that the

Dawes Report is altogether a phenomenal accomplishment in this direction and that the highest admiration can only be expressed both in
regard to the political wisdom as well as to the economic conclusions
of the Committee of Experts.

It goes without saying that I am person-

ally fully convinced that this Report is not the last word regarding
the whole question, but it Shows us for the time being the way out of a
maze, the ()zits,

and outside.

of which seemato be barricaded both from the inside

The great misfortune is that this report appeared so very


A year ago we could have passed it with a large majority;

today, however, new difficulties have arisen by reason of the German
as well as French recent elections.

Nevertheless I do not lose

courage, but it is of utmost importance that this Report be transposed into actuality with the greatest rapidity.
The Micum Agreement will expire again on June 15th;
according to my information it is entirely impossible for Germany's industry to continue deliveries on this basis, asshe no longer
has the capital necessary for making deliveries without payment.


enclose a report which I made yesterday before the Central Committee
of the Reichsbank, from which3ou will see that the Reichsbank as well,

has arrived at the end of its resources, so that the whole country is
suffering from a terrible lack of capital.

The worst is that even

foreign credits of longer maturities will not help us, because even
the assurance of
these cannot be used by conservative parties without/a final and lasting stabilization of the German currency.

This point is usually lost sight of by all foreigners,
but the Management of the Gold Discount Bank is giving it particular


The latter Bank only gives credits to such firmswho can


absolutely prove that they can produce foreign currency at maturity
of the bills out of their own resources, viz, from exports or other
foreign orders which they may have in hand.

the Gold Dimount Bank hasnot extended it

This is the reason why

ctivities as fast as this

may have been expected in foreign countries.

It is my desire toimain-

tain under all circumstances the standing offlunconditional safety for

granting credits to the Institution", and particularly not to jeopardize
tbe confidence which was shown everywhere during the last few months
in the Reichsbank.

so moderate

This wasone of the reasons why I only asked for

an amount of rediscount credits

when you were

kind enough

to offer your services in this direction.

This may have appeared

rather picayune to some of your American ftiends who are used to
large transactions, but I believe that you will fully approve of
my policy in the long run.

The time has now arrived, however, when

I should like to ask you to be less stringent in regard to credit
facilities for the Gold Discount Bank.

The Management of the latter

Bank will write you direct regarding this matter and will propose
some changes for future transactions, which I hope both you and your
friends will accept.

Please bear in mind that it is of great help

for the German industry and commerce if we can place at their disposal credits of the Gold Discount Bank at a more moderate figure.
In any case, it is our desire not to base ourselves
on the Pound Sterling.

In this connection I have been par-

ientirely interested in the report and the remarks of the Federal Reticularly
serve Board concerning the question of the Sterling or Dollar basis:
I have not fully understood the controversial points, because it appears to me that this matter is clearly elucidated in the Dawes Meport, according to which only "gold" comes into question as the basis
for the future German Reichsbank.

There is also not the leastdoubt,

as far as I am concerned, that we cannot have any real economic basis
in Europe until the currenciesjat least of the leading and most important countries/ are again placed on a gold basis.

I shall always feel most grateful to you, my dear

Mr. Warburg, for any suggestions or information you will be kind enough
to transmit to me, and you may rest assured that I fully and gratefully appreciate the inestimable services which you are rendering the
German, and thus to the/European economic/establishment. You are
thereby performing a service which is not rendered to any individual



or class interest, but which redounds to the benefit of humanity
at large, and this ought to be/aim of all personOf ideal and moral
Believe me, with best personal regards,
Yours very truly,






June 12, 1924.


Dear Ben:

Thanks for your letter of June 9th.

I am in

full accord with what you say.

I enclose a translation of the letter which I received from Doctor Schacht.

It may interest you.

Benjamin Strong, Esq.,
Federal Reserve Bank,
15 Nassau Street,
New York City.


erely yours,


JUN 1 7 1924


June 16, 1924.

Dear Ben:

Enclosed a letter from Mr. Morss.
it, I should like to compare notes with you.

Before answering

Will you let me

know at your convenience when we may have a chat.
Sinclfely yours,

Benjamin Strong,Esq.,
Federal Reserve Bank,
15 Nassau Street,



JUN 17 i





SEPTEMBER 25, 1924.

RESOLUTION NO. 1: WHEREAS, a further easing of money rates at this
time might render it extremely difficult to ward off a period of acute inflation with
its subsequent evil consequences with which the country is only too well familiar,

WHEREAS, forced investments of Federal Reserve Banks in our market and continued substantial importations of gold into the United States are factors that might
tend to enhance the plethora of money already existing,

RESOLVED, that this Council recommend to the Federal Reserve Board to consider the question whether the time has come for Federal Reserve Banks to exercise
their power to invest some of their funds in foreign bills with approved American
banking indorsements and payable by and repayable to Federal Reserve Banks in

The Council believes that observing these safeguards and by properly scattering its purchases the Federal Reserve System can safely invest substantial amounts
abroad, without any risk of loss on account of exchange or otherwise, and in doing
so ward off to that extent the inflow of gold, incidentally assisting the foreign
countries involved in their efforts to stabilize their exchanges and to bring them
back to definite gold relations.

RESOLUTION NO. 2: The Council has learned that the Secretary of the
Treasury is about to call in for redemption on February 1, 1925, the $118,489,900-4%
Loan of 1925, and desiTes to record its entire approval of the policy involved in this








January 27, 1925.
Lear Ben:



I take great pleasure in sending
you herewith a copy of a confidential report which was prepared for submission to
our stockholders et the annual meeting a
week ago. It contains a short review of
the first three and one half years of the
activities of the International Acceptance
Bank, Inc.
The friendly interest you have
shown in the development of our Bank emboldens me to hope that you may find the
time to glance over this report, and that
it may please you.
ery faithfu

Hon. Benjamin Strong,
Federal Reserve Bank,
33 Liberty Street,
New York City.

y yours,





36 la25

IL g R4.1



Strictly CONFIDENTIAL and not for publication

of the

international Acceptance Bank

To the Stockholders at the Annual Meeting
January 20, 1925

52 Cedar Street, New York

for 1925
Chairman of the Board








for 1925





& Secretary




Assistant Vice-Presidents


Assistant Secretaries


(3' Mgr. For. Ex. Dept.
Assistant Treasurers


Mgr. Commercial Credit Dept.



Chairman of the Board of Directors

At the Annual Meeting of the Stockholders

January 20, 1925



Stockholders' Liability for Uncalled Subscriptions

Cash on Hand and Due from Banks
Call Loans Secured by Acceptances
Acceptances of Other Banks


$ 17,484,594.32

U. S. Government Securities
Collateral Loans.

Loans and AdvancesDue in 30 days_



Other Bonds and Securities
Customers' Liability for Acceptances (less anticipations)._.
Customers' Liability under Letters of Credit
Accrued Interest Receivable and Other Assets


Due after 30 days_ ......


Capital and Surplus Fully Subscribed

Capital and Surplus Paid in_.
Undivided Profits
Due to Banks and Customers
Acceptances Outstanding
Letters of Credit
Reserve for Taxes, Unearned Discount and Other Liabilities


Contingent Liability account of Endorsed Acceptances, For$ 17,492,611.17
eign Bills, etc., Sold._


year 1924 will probably be written down in world
history as marking the turning point when the Great
War actually came to an end and when reconstruction
really began. No careful future historian will venture to take
the year 1918or even 1919, as the beginning of the post-war
recuperative period. The Armistice in 1918 brought military
operations to an end; the Treaty of Versailles brought about a


political settlement between the warring parties; economic warfare, however, continued, and a real peace was established only

by the acceptance and putting into operation of the so-called
Dawes Plan.

We may now hope that in 1925 a solid structure may
rapidly spring up from the foundation carefully laid in the

year just closed, for, just as inflation and economic disintegration spread over Europe like a contagious disease, so we may
expect the healing process to spread gradually from one country
to another.
From this point of view, Austria's, Germany's an

Hungary's accomplished stabilization means more than the
re-establishment of social and economic order in these countries.
It means that the era of wildly fluctuating exchanges is generally

approaching its end and that soon we may hope to see King
Gold bringing once more under his final and definite control the
printing presses that had threatened to drown Europe in a flood
'of paper currency. The battle in this regard was won, indeed,

when Austria and Germany were placed on a gold basis. It
seems now to be only a matter of time before we may see the
Pound Sterling placed on a basis of free convertibility into
gold, with several other countries following suit, and France,
Belgium and Italy determining the new levels on which to
stabilize their respective exchanges. It is realized by all that
this will not be an easy matter, and that such steps will require
courage and a willingness to accept heavy sacrifices. However,
the Austrian, German and Hungarian experiences in this regard
have not only pointed the way, but have also taught the lesson

that the results warrant whatever temporary hardships may
be involved.

For the International Acceptance Bank, Inc. this turning
of the tide is of a double significance.


The character of the business done by our bank is largely

international, and the first years of its operations were, by
reason of the economic and political uncertainties then existing,
necessarily governed by the greatest caution and conservatism.

It is, therefore, of the very greatest importance that we may
now hope to see Europe enter upon an era of greater political
and economic stability.

From its inception, our bank has pursued a policy of
distributing its risks both as to the commodities and countries
involved in its credit transactions. With the greater safety to
be looked for in the near future, it may be possible to enlarge

the limits to which dealings with each country have been
restricted. However, the development of the International
Acceptance Bank, Inc. has synchronized with the general course

of events in this further respect, that the three and one-half
years of its existence to date may be considered as the period
during which its foundations were laid, and that for it, too, a
new era may begin with the year 1925.
The International Acceptance Bank, Inc. opened for
business in April 1921 with a capital and surplus fully subscribed of $10,000,000 and $5,000,000 respectively. When the
original plan for its structure was worked out, its organizers had

in mind that for an acceptance bank it would be of great
advantage to have a substantial uncalled liability on the part of
its stockholders. In this they were following British banking
methods; the thought being that an uncalled liability enables a
bank to take upon its shoulders correspondingly larger engagements, while at the same time the capital paid in on which a
dividend is to be earned, remains smaller. An uncalled liability
is, therefore, a protection for the creditors of the Bank while

at the same time, from the point of view of the return to be
earned, it is a benefit for the stockholders. The organizers of
the Bank had hoped that it would be possible to arrange its
capitalization in such a manner as to provide for a capital of
$10,000,000 on which $5,000,000 would be paid in, plus a surplus

fully paid in of $5,000,000, so that there would have remained
an uncalled liability of $5,000,000 on capital account. Unfortunately, under the rulings of the State Banking Department then
prevailing, it was necessary that the capital should be paid in
in full, leaving the uncalled liability on surplus account. This


plan had, therefore, to be followed when the Bank was organized.

It was felt, however, that our structure was not an ideal one
until we had at our disposal a surplusnot subscribed, only,
but actually paid in or earnedwhich would actually be available for any emergency that, theoretically or practically, might

In these circumstances it was the first concern of the
management of the International Acceptance Bank, Inc., to

build up a substantial surplus from earnings. Satisfactory progress has been made in this regard. At the close of 1924 our
balance sheet shows in undivided profits an amount in excess
of $2,500,000, while a further substantial hidden reserve has
been accumulated so as to be available in case of unexpected
contingencies. We are delighted to report, moreover, that it
has since been possible to obtain from the Banking Department
an amended ruling which enabled us to carry out our original
plan. Accordingly we sought and obtained the unanimous
consent of our stockholders to so readjust the capital and surplus
accounts that from the first of January 1925 our balance sheet
will show a capital paid in of $5,000,000, a surplus actually paid

in of $5,000,000, an uncalled liability on account of capital
stock subscriptions of $5,000,000, and undivided profits in excess
of $2,500,000. This, plus the fact that other substantial reserves

have been accumulated, gives the International Acceptance
Bank, Inc. the position of intrinsic and structural strength which
it was essential to secure before, in the judgment of its officers
sand directors, dividend payments should be inaugurated. It is
now felt that, if conditions continue to develop as favorably as
they have in the past, the moment may be near at hand when
the Bank should begin to make a regular, though of course at
first moderate, distribution to its shareholders.
Thus, we may say that with the end of 1924 the first forma-

tive period of the International Acceptance Bank, Inc., has
come to a close.
It is possibly more than a coincidence that at this particular
time the Bank having outgrown its first quarters, on December
22 moved into a building of its own. Very soon after its first
operations began on the two original floors at 31 Pine Street,
this space proved inadequate to take care of the Bank's rapid

growth, and, further space in the same building not being
available, two floors had to be leased next door at 29 Pine Street.


It is needless to say that operations in two separate buildings
were neither economical nor conducive to that degree of efficiency

which the Bank tries to attain. In these circumstances it soon
became apparent that it was only a question of time before the
Bank would have to seek its own permanent quarters. Fortunately a building at 52-56 Cedar Street, admirably suited for
our purposes, was available at a moderate price. This property
was accordingly acquired and remodeled by the Cedar Street
Corporation (organized for that purpose), of which the International Acceptance Bank, Inc. is the only stockholder. At a
very reasonable expense it was then found possible to enlarge
and improve the building in such a manner as to provide the
Bank with thoroughly modern quarters, adapted to its present
needs and leaving ample space for future growth. It is planned
for the time being to let several floors, thereby reducing the
annual charge to the Bank, which, when all free space is rented
and our old lease disposed of, will practically be the same as it
was in our old quarters. Several of our out-of-town stock-holding
banks have taken offices for their New York representatives in

our building, and this, it is hoped, will further promote the
development of our relations with them.
A review of the first three years of our operation warrants
the statement that the two specific thoughts that underlay the
foundation of our institution have shown themselves to have
been sound. These fundamental ideas were: first, that as a
consequence of the war and the perfection of the Federal Reserve
System, the United States found itself in a position of financial

predominance which imposed upon the American bankers the

duty of doing their share in financing the world's trade and
commerce, and gave them the opportunity, by the granting of
Dollar credit facilities, to take over, in particular, the burden
of financing a large part of America's own foreign trade heretofore carried through Sterling credits opened by British bankers.
The second thought was that insofar as this business involved
intimate relations and acquaintance with foreign countries, it

was most desirable, if not imperative, for any bank planning
to engage comprehensively and successfully in this new field to
enjoy relations of the greatest possible intimacy with banks and
firms long established in these foreign lands. These considera-

tions led

to the plan of inviting leading firms and banks in

foreign countries to become our stockholders and close associates

in our enterprise. Looking backward today we find every
reason to congratulate ourselves upon the adoption of this

These foreign friends, in due course, became not only

our best customers, but, what is even more important, they
became our trusted advisors. Our relation with them has
enabled us consistently to hold to the policy of granting commercial credits in foreign countries where we have the advantage
of having stockholding banks, only upon the recommendation
of these banks, and, wherever possible, with their participation

in the business. Relations of this sort were of outstanding
importance when conditions were as troubled as were those
prevailing throughout the world during the first years of our
existence. With banking and credit conditions shrouded in a
heavy mist, it would have been impossible for our bank to

undertake the business it did without the backing and the
confidence gained from the co-partnership of these foreign
institutions. True enough that even with these advantages,
we had to move most cautiously and hold consistently to the
principle of distributing our credits as widely as possible, both
as to commodities and countries, and of never exceeding a
certain maximum limit for any single commercial risk. Credit
business in the final analysis is insurance business, and wherever

we considered that the commitment involved in any single
credit exceeded the conservative maximum we had established

for ourselves, we sought associates willing to join us in the
transaction. In this respect our American stockholding firms
and banks proved valuable partners; and we did not find any
difficulty in increasing the number of participants in our credits
outside of this group of intimate friends whenever that seemed

It is a satisfaction to state that our Bank has been
permitted to enjoy a position of confidence in the banking

community almost from the day of its beginning.

As early as July 1921, the Bank was able to organize an
acceptance syndicate of $9,000,000 for the purpose of financing
a grain credit to be granted to Germany, on which occasion it

cooperated with the Bankers Trust Company of New York.
Since then several large syndicate credits have been arranged
by the International Acceptance Bank, Inc., the most interesting of which was probably a re-discount credit of $5,000,000,


later enlarged to $25,000,000, which was opened for the German

Gold Discount Bank at the request of its President, Doctor
Schacht. In this credit practically all the leading banks of the
City of New York and many of our out-of-town friends participated. The Syndicate was formed in order to provide for the

Gold Discount Bank facilities for rediscounting German trade
bills drawn in dollars and domiciled in New York, having not
more than ninety days to run, such bills bearing in addition to
the signatures of the purchaser and seller of goods, the endorsement of a German bank or banking firm, and the endorsement
of the Gold Discount Bank. With the approval of the Federal
Reserve Board such bills were declared to be eligible for purchase
by the Federal Reserve Banks when bearing an approved Amer-

ican endorsement. This rediscount credit, while ultimately
used only to a comparatively small extent, no doubt proved to
be a helpful and constructive transaction in the critical period
preceding the adoption of the Dawes Plan, when it was imperative to preserve and strengthen German credit until that plan
could be matured and carried into effect. In this connection
it may be of interest to record that prior to this transaction, in
cooperation with other banks, we had already granted a similar
though smaller rediscount credit to the Hamburgische

Bank of 1923, which aided that institution in substituting a
gold currency in Hamburg when the flood of paper circulation

had reached its highest crest. In all transactions touching
Germany, we had the invaluable benefit of the cooperation and
advice of our friends and associates there. They acted as our

guides and partners in a large number of credits which we
opened in Germany, and while these transactions were concluded in a critical period we are happy to state that due to the
intelligence and vigilance of these friends we did not have to
record a single loss in our credit transactions with that country.

In a similar manner our intimate friends in other countries
have been of the greatest value to us.

They brought us valuable

accounts, and through them we have opened a large number
of credits, some of which led to interesting syndicate transactions

under our auspices. These negotiations were not limited to
the granting of acceptance credits. They also led to our placing,

in conjunction with other friends here, short term notes for
foreign governments, municipalities, and private enterprises.
While we have adopted the general rule of not acting as a seller

of securities to the public, we have placed our services freely at
the disposal of our friends here and abroad and have carried on
negotiations which brought together the would-be sellers abroad
with the would-be purchasers in this country. Moreover, in
two exceptional cases where it seemed desirable to demonstrate
our sympathy with the undertaking and our wish to cooperate
in a constructive operation, namely in the Japanese and German
loans, we appeared as one of the issuing houses on the public

One of the most interesting developments in 1924 was the
organization of the American & Continental Corporation, in
which the International Acceptance Bank, Inc. took a prominent parteven though its ultimate actual financial investment
is only a comparatively small one. Early in 1924 it became
apparent that the acute shortage of working capital in Germany,

due to the devastating effects of the war and of the post-war
inflation, could not be met through ordinary banking channels
insofar as the advances required by the German industries were

really needed for working capital and for periods of several
years. These requirements often could not be filled by an

immediate appeal to the investment market,first because
the conditions in Germany were not yet sufficiently clarified to
permit the sale of securities to the American public, and second,
because the rate at which such securities would have to be sold
might have constituted too heavy a permanent burden for the
German borrower. It, therefore, appeared desirable to organize
an intermediate credit corporation which would be able to tide
over certain German industries during the time in which they
could be helped neither by commercial banks nor by an appeal

to the investment market. It was thought that industrial
corporations desiring to secure advances for, say, three to five
years might be willing to compensate the American lenders by
granting options on stock or other similar advantages conditional

upon their own success, as compensation for a comparatively
moderate interest charge to be applied on such loans.
It was for the purpose of dealing with transactions of this
character that the American & Continental Corporation was
constituted as a syndicate in corporate form with a capital
fully subscribed of $10,800,000. The first organizers were
Kuhn, Loeb & Co., Dillon, Read & Co., North American Corn-


pany and the International Acceptance Bank, Inc. They were
joined later on by other American firms and corporations, the
principal participants being the following New York banks and

American International Corporation, Farmers Loan & Trust
Company, Marshall Field, Glore, Ward & Co., New York Trust
Company, the U. S. & Foreign Securities Corporation; also the

First National Bank of Boston and A. G. Becker & Co., of

These participants were willing to lock up their proportionate share in the syndicate in the hope that by so doing they
would ultimately realize attractive benefits from the options or
other advantages to be secured by the Corporation. That
this thought was a sound one is proven by the fact that it has
been possible since the Corporation's formal organization in
October to invest a substantial portion of its available capital
in a manner as above outlined; and it is pleasing to state that
some of the options on shares have already begun to show promising profits. Similar transactions are in the course of

The fact that the circle of would-be lenders has widened,
through the general confidence instilled by the improvement in

the situation in Europe, will naturally render it somewhat
more difficult for the Corporation to operate in the future.
However, inasmuch as the Corporation is in fact a syndicate,
it can, as such, afford to bide its time and call upon its participants for payments on their subscriptions of stock only as it sees

opportunities which are genuinely attractive and warrant the
tieing up of funds for a protracted period.

The American & Continental Corporation follows substantially the same plan as the International Acceptance Bank,
Inc., insofar as it has laid down for itself the policy of securing,
wherever possible, not only the advice but also the active participation of leading banks and banking firms in the country

where the advance is to be granted, and of its associates in
adjoining countries. The Corporation has been most fortunate
in constituting a European group, which acts as its advisor and

partner in these advances. This group comprises such banks
and firms as:


Deutsche Bank, Berlin; M. M. Warburg & Co., Hamburg;
A. Levy, Cologne; Sal. Oppenheim & Cie., Cologne; I. H. Stein,

Cologne; and outside of Germany: Hope & Co., Amsterdam;
Societe Financiere de Transports et d'Enterprises Industrielles,
Brussels; Skandinaviska Kreditaktiebolaget, Stockholm; Svenska
Handelsbanken, Stockholm; Oesterreichische Creditanstalt fuer
Handel & Gewerbe, Vienna.
Some of these have, at the same time, become stockholders
of the American & Continental Corporation.




Stockholders' Liability for Uncalled Subscriptions

Cash on Hand and Due from Banks
Acceptances of Other Banks
Call Loans Secured by Acceptances
U. S. Government Securities
Collateral Loans
Other Loans and Advances
Other Bonds and Securities
Customers' Liability for Acceptances (less
Customers' Liability under L/C
Other Assets


$ 5,000,000.00

$ 5,000,000.00

$ 7,154,615.18

$ 6,253,734.30 $ .7,582,067.36













Capital and Surplus Fully Subscribed



$ 15,250,000.00

Capital Paid in
Surplus Paid in..
Undivided Profits
Due to Banks and Customers
Acceptances Outstanding
Letters of Credit.
Reserves for Taxes, Unearned Discount and
Other Liabilities











Contingent Liability a/c Endorsed Acceptances, Foreign Bills, etc., Sold



$ 17,492,611.17

The consistent growth of the International Acceptance
Bank, Inc. since its organization, is clearly evidenced by the
comparative statements as of the close of the years 1922 (its
first full year of operation), 1923 and 1924.

The steady increase

in acceptances and letters of credit outstanding on December
31 from $34,400,000 in 1922 to $39,300,000 in 1923, and
$46,800,000 in 1924 reflects the development of the Bank's
chief line of activity. The growth of the current account business,almost entirely with foreign clients,is evidenced by the
increase from $13,000,000 on December 31, 1922, to $28,200,000

in 1923, and $44,460,000 in 1924. The number of accounts

has increased steadily, and during the last year showed an
increase of 20% over 1923.

Investments, notably in United States government securities, loans, advances, portfolio as shown in the comparative
figures, all indicate a gradual and consistent building up of the
bank's business.

A comparison of the Undivided Profits Account shows
moreover that the earnings of the Bank have grown more than
in proportion to the increase of its business during three and a
half years of operation.

Undivided profits in excess of $2,500,000

have been accumulated in addition to very substantial hidden








Net Earnings
Deductions for Taxes, Extra183,700.00
ordinary Reserves, etc

$ 967,255.39




Amount transferred to Undivided Profits

$ 887,500.00

$ 942,679.48
$ 663,135.83

The Bank has been fortunate in not having incurred any
losses of consequence from the day of its organization to date.
(The total amount actually charged off against losses in this
entire period is less than $40,000).

As regards our staff, we began the year 1924 with 187
officers and employees, as against 160 in the previous year, and

as against 69 at the beginning of 1922 and 35 in April 1921,
when the Bank was organized. We have continued our policy
of increasing the salaries of the members of the existing staff,
commensurate with the efforts they put forth, rather than of
adding to the bank's expenses by taking on many new employees.

That the increased efficiency of our employees enabled us to
carry this policy into effect, may well be a source of as genuine
a satisfaction to the entire staff as it is to the officers.
Among the officers the following changes took place during


Mr. Henry B. Kingman resigned as Assistant Secretary
and became Vice-President of the Webster and Atlas National
Bank in Boston. Mr. A. Benjamin, Assistant Secretary,
resigned, and became Manager of the Foreign Department of
the Manufacturers Trust Co. Mr. E. Gugelmann, Manager of
the Foreign Exchange Department, resigned and returned to
his home in Switzerland, where he has become affiliated with

the Banque Commerciale de Basle. Mr. W. H. Schubart
became Manager of the Foreign Exchange Department. Mr.
Harold E. Barker and Mr. Howard J. Rogers were made Assistant Vice-Presidents. Mr. John P. Collins was made Treasurer,
Mr. G. Gensch, Assistant Treasurer, Mr. C. B. Hall, Assistant
Secretary, Mr. B. Hwoschinsky, Manager Commercial Credit

Department and Mr. W. T. Sheehan, Manager Collection






April 20, 1925.

Dear Ben:

I have to thank you for your two nice notes

of April 17th.

I am looking forward to
the Machado dinner. Not that I care

but I am looking

with you at

much about

the General,

forward to your company and that of the

Federal Reserve Bank



which I am

sure will be

very pleasant.

As to the Augusta meeting, you know without

my saying so

that you may call on we any time day or night.

It will always be a pleasure to respond, even though
may at times

be a


greater pleasure to devise ways and means

to do the trick without being anglad-hander" amongst the
A. B. A. crowd.

Perhaps you might be interested in a let-


ter I wrote Doctor Lichtenstein, and sent down to him at
Augusta through the intermediary of the A. B. A. office
I think that should give him ammunition

enough to

out of mischief.
With kindest regards,

Benjamin Strong, Esq,,
Federal Reserve Bank,
New York City.

sincerely you

keep him




9 014



Paul -11.:Warburk

Hamburg,August 21st 1925.

Dear Ben,

I just returned to Hamburg after a two days, visit with
our friend in Berlin and I want to send you these lines so as to
keep you advised before your own sailing.I thank you very much
for your letter which I read with the greatest interest.I regret
to say that the deeper I got into the matter,the more I became

impressed with the terrible bungling that had taken place.I am
afraid our friend,or his subordinates,committed a grave blunder
when they permitted two institutions who had been members of my
original syndicate,-and who had found the door to the Reichsbank
through me-,to inveigle them into the belief that the interests
of the Golddiskontbank were better served by individual trans-

actions than by a continuation of the handling of the American
market -te one organized group.I assume that your New York

associates have kept you


advised as to what happened.The

thing finally degenerated into a peddling campaign on the part

Mr.Bendix who went around offering the bills at 5% to the

banksfollowing the lists that constituted our original syndicate,

the result being that there were refusals,galore ,and a matter,


had been handled in good style and on a high plane,

was permitted to become thoroughly discredited.We have had
Hon.Benjamin Strong Esq.

Norman Esq.

Bank of England

London E.C.




Benjamin Strong Esq.,

indications that the members of the old syndicate were

considerably nonplussed and annoyed.While the whole affair is most
unfortunate it is only fair to state that Dr.Schacht had not been
entirely aware of what had happened and when,after our talks
he saw the mess they had made he lost no time in stopping all

offers.He has since written me a letter of which I enclose a copy
ee,z 44-.441-




for your own confidential useirThis letter tells its own story

and shows you the fine spirit in which Dr.Schacht accepted
my very frank statement Arty talks with him were most satisfactory
in this regard and while I regret what has happened -even more


interest than in mine- I believe that in the end we

parted better friends than ever.

As he told me he is going to see you in London
before you sail,and I think that it may be advisable therefore,
that I should put before you some thoughts which I suggested

to him ,and which he asked me to discuss with you upon my return
and which,no doubt,he will discuss with you himself .Outside
of us two the matter is not to be mentioned for the time being.

I aaid to Dr.Schacht that,inase he wanted to give
the German market the benefit of the borrowing power of the

rediscount market in New York,it would be better to bottom the
watter on a definite transaction which could be readily
exnlained and understood ,and which in itself would command
so much confidence that the weight of the Goldiskontbank's

endorsement in the matter would become rather slight.' asked

him whether it would not be possible to have the German government

railway system which every year buys approximately M.300.000.000.d


Bel4amin Strong Esq. ,London.

worth of coal from the coal minesobecome the borrower by arranging
for the German railways either an acceptance credit to be granted
by a New York banking syndicate and to be availed of by the
coal producing companies ,or whether it would be possible ,if that should be preferredrto have the coal mines draw tradeacceptances on the Reichsbahn which could be endorsed by German
banks and then bought by the Golddiskontbank and sent to a
New York syndicate on similar lines as was done in connection
with the first credit.-In either case the German Reichsbahn
would be looked upon as the main borrower and the bulk of the
burden of the credit would rest on it ,instead of on the Golddiskontbank.

If the form of an acceptance-credit should be

preferred it would be quite possible to have the coal fenced
off and put in the custody of the Deutsche Waren-Treuhand A.G.,

a trust company organized for such puposes ,so that the
acceptances would be"eligible as drawn against staples in
independent warehouses "

I think both transactions would be feasible.As to

which would be the more agreeable form will depend largely
upon your own judgment.Your own ideas coneerning the desirability
of a co-operation on the part of the Federal Reserve Banks
will be of outstanding importance in fashioning these plans.
They could be carried through quite independently,the Federal
Reserve Bank being in the background as a well-icclined friend
in case of need.That would leave your hands free in case you
felt that you wished to be open for other direct transactions

-4- Benjamin Strong Esq., London.

with the Reichsbank or Golddiskontbank .0n the other hand if it
would be agreeable for the Federal Reserve Banks to purchase
the bankers acceptances,in case such syndicate should be
organized ,they might be steered into the Federal Reserve Banks
direct without coming into the market.

Don't bother tc acknowledge this letter.We can discuss
its contents when we meet in New York;but inasmuch as Dr.Schacht
is not quite as well posted with regard to the rules and
regulations (written in the year 1914 at White Sulphor Springs
by one Benjamin Strong and one P.W.M.),I thought that it might
be better for me to explain to you what is at the back on my
bald cranium.

My impressions in Berlin were that, while the shrinking

process through which Germany is passing,and the pricking of
the bubbles,is painful,it is a healthy process and one,which

was inevitable in order to reach a rock bottom foundation
for Germany's future economic growth.The so-called vertical

trusts will have to go,and the horizontal trusts -which means
the consolidation And merging of related industries-will have

to grow; the coat has become too large for a shrunken body and
some pleats are being tatien out at present.And that is as it

should be.The situation is aggravated by the curtailing of
foreign credits and the unwillingness on the part of some American
and other foreign institutions to continue to repurchase
maturing domicile-paper.But then you know my opinion,of ten

expressed,that the peddling out of this paper was an undesirable

and dangerous affair ,just as undesirable as the granting of
credits on the part of people who only are what I call


-5- Benjamin Strong Esq., London.

" fairweather-friends".Men of that disposition have no place

in the credit-business; they are a nuisance and a danger.But I
do not want to mention names; moreover you know them.

My ladies thank you very sincerely for your kind regards
and reiterate them cordially.I think Nina has profited greatly
from the cure


as to myself I am so thoroughly rejuvenated

that most people think I have become positively childish.

I hope you had a nice time and that I shall see you soon
at your desklhale and hearty and with the familiar twinkle in
the eye.Cheerio and au revoir!

Alwa s yours


or1in 20.Aug.25.

Der Prasident
des Reichsbank-Direhtoriums

Herrn Paul Viarburg

Ne't. York
52 Cedar Street

Sehr verehrter Herr



Nachdem aus Ihren Mitteilungen mir hervorzugehon
schisn, dass aber den Redishont von

echseln dLr deutschen Gold-

diskontbank am Nei/ Yorker Platze bei Ihren Preunden unrichtigo

Aufrassungen vorhandon zu coin scheinen, mahte ich mir erlauben,
'hum kurz das, was geschehen let, zu schildern,

N,chdem/s.Zt. zu miner grossen Gonugtuung das erste RedishontSyndihat fUr die Golddiskontbank zustande gebracht hatten



sich, class P ichsbank und Golddiskontbank in slob stark gonug waren, dom dads auftretenden Begehr in einem grossen Umfange aus

eigener Kraft zu befrledigen, sodass rir von den S:rndihat nicht in
dem ervartbten Ausmasso Gcbrauch zu machen in der Lage 1,aren. 1:Ionn

vir dagegen eine Bereitstellungsprovision zu zahlen hatten; so war
dies zrar eine Belastung, ich mbchte aber nochmals ausdrilcklich

anorkennon, dass der Dienst, den Sic uns danals geleistet haben,
em n grosser geresen 1st und dass

Ihre Bemaungen in vollom

Umfange anorkannt haben und noch haute danhbar Virdigen.


Inzvischen sind .n die Golddishontbank von einor ganzen Reihe

von amerikanischen Bankm von Zoit zu Zeit immer wieder Anfragon
gehommon, ob man nicht ;;echsel nech Now York abzugeben bereit eel.
Das let


ale auch von

owohl von Firmen, die Ihrem Syndikat angehOrten,

Firmen, die aussorhalb dos S:ndikats standen. Es let

dabei immer wieder zum Ausdruck gebracht 'warden, dass man doch ouch
gem n in direhte Verbindung nit der Peichsbank und der Golddiskont-

bank Ionmen mochte. Nachdem nun die Golddiskontbank ihr zundchst
etwas eingeschrunktes deschaft wieder erweitert hat, um darn deutschen

Export zur Seite zu stehon, habe ich, da ich mich in orstor Linie
linen vorpflichtot Milt°, mit Ihrem 'ruder Max gosprochon und ihm
die Situation dargelegt, Ihr Sruder Max war auch der Ansicht, doss

manyohl in dam heutigen Stadium die Anerbioton andoror amerihanischor
Banhen nicht ablohnen sollto, unbeschadot des Jmstandes, dass die
Golddiskontbank in erster Linio Ihnffn, sohr vorohrtor Herr Warburg,

verpflichtot sal,

'is Ihneh bokannt 1st, haben ;ir dann mit der "International

Acceptance Bank" omen Rediskont-Krodit von 2 Mlionon Dollar abgeschlosson, und vim' habon -Corner mit droi andoren amerikanischon

Bankbn amen fredit Ube/. dhnliche Betrdgo (toils etwas grOsser,
toils etwas kloinor ) gleichfalls abgeschlosson. Es wird Sie inter-

ossieron, dass wir bicker, alias in allem, diese Fazilitdten bis zu
einem Betrage von 5,1 Millionon Dollar nusgenutzt haben. Ich nenne

Ihnen dieson Betrag absichtlich, um durch Sic den amorikonischon
Markt 'Thor die Mho unsorer Engagements aufzuklaren. Iola verde mir

auch erlauben, Thnon von Zeit zu Zeit mitzuteilen, wie hoch das

gosamte Rodiskont-Engagemont dor Golddiskontbank jet, und ermachtige
Sic L-ern,

jo ich ward° sogar drum bitten, dass Sic cli1e Lotrage dort

wissen lassen, damit der amerikanischo Mirkt genau übe

unsere Vox-

pflichtungon oriontiort jot. Es ist nix dieses dosvegan besonder4
an,1,-onohm, als ich horo,dass hier und da von unberufenon Vcrmittlorn,

die hoinerlei Auftrag von uns haben, amerikanische Banhon far Radiokont-Abmachungen der Golddishontbank interossiert zu wordon schoinon.

Ich ormLchtigo Sio deshalb gem, davun Gebrauch zu machen, dass wir
niemals irgend jo_anden beauftragt haben, fur die Golddiskontbank
in diosor

eise tutig zu sein4, wio fir aberhaupt bicker Rediskont-

hredito nicht nachgosucht habon. Sollton dio Dingo einmal so laufon,
doss wir unsororsoits zu einom gr6sseren Golddiskont/hrodit
Tnitiativo orgroifon solltan, so wardea wir in erstor Linie


mit Ihrem oohrton Hauso in 'arbindung troton.
Erlaubon Sic mir, Ihnen nochmals zu vorsichorn, class es mir
oin ganz bosondoros -orgnagen war, Sic hier gazd.sehen und die fteund-

schaftlichon 13oziohungen, die uns und unser° Institute


vorbindon, aufs nuo bekraftigt zu habon.

Mit basten Grassen
Ihr sohr ergobonor
gez-Dr.iljalmar Schacht



3 5/925

OF tirvi v





The President of the

Berlin, Aug. 20, 1925

Mr. Paul Warburg,
52 Cedar Street,
New York.
Respected Mr. Warburg:

Since from your information to me it seems that among your friends
wrong impressions exist about the rediscounting of drafts of the German Golddiskont Bank

on the New York market, I should like to be permitted to tell

you briefly what has happened.

After you atthe time, to my great satisfaction, had brought into
existence the first rediscount syndicate for the Golddiekont Bank, it was shown
that the Reichsbank and Golddiskont Bank in themselves were strong enough to
satisfy/their own power to a large extentithe demand existing at the time, so
that we were not in a position to make use of the syndicate to the extent expected.

When we had to pay a commission for protection, that was, indeed, a

burden, but I must expressly recognize again that the service which you then
rendered us was a great one, and that we have recognized your efforte in full
measure and are still today thankful for them.

Meanwhile, requests are still

coming to the Golddiskont Bank from a whole series of American banks from time
to time,as to whether they are not ready to give drafts on New York.

That has

been done both by firms which belong to your syndicate and by firms which were
not in the syndicate.

The wish was repeatedly expressed that they would like

to come into direct connection with the Reichsbank and the Golddiskont Bank.

After the Golddiskont Bank had exppnded its at first limited business, in order
to back German export trade, I have, since I felt under obligation to you, above
all, spoken with your brother Max and explained the situation to him.



brother Max is also of the opinion that in the present condition of affairs we
should not decline the offers of other American banks, notwithstanding the fact
that the Golddiskont Bank was, above all, under obligations to you, highly
honored Mr. Warburg.

As you know, we have established a rediscount credit of t2,000,000 with
the International Acceptance Bank, and we have, moreover, likewise, established
with three other American banks a credit of like dimensions (partly somewhat
larger, partly somewhat smaller).

It will interest you t

all in all, have made use of these facilities to an amount of 5.1 million dollars.
I mention this amount to you


in order to enlighten the American

market through you as to the amount of our undertakings.

I shall also permit

myself to inform you from time to time how great the total rediscount liability
of the Golddiskont Bank is, and permit you gladly, yes, I would even request you
to, make known the amounts in your city, so that the American market should be
clearly informed about our obligations.

This is especially agreeable to me be-

cause I hear that, here and there, American banks seem to have become interested
for rediscount dealings of the Golddiskont Bank, made by unauthorized go-betweens
who have no commission from us.

I gladly empower you, therefore, to make use

of the knowledge that we have never commissioned anyone to be dealing in this
manner for the Golddiskont Bank, just as we heretofore have never sought for rediscount credits.

Should things go so that we on our side wish to take the in-

itiative for a large Golddiskont Bank credit, we would then, first of all, again
make connections with your honored firm.
Permit me to assure you again that it gave me an especial pleasure to
see you here and to have strengthened again the friendly relations which join
us and our institutions mutually.

With kindest greetings,

Dr. Hjalmar Schacht


Dt -Prasident




Berlin, August 20th, 1925.

Mr. Paul


New York
52, Cedar Street.

Dear Mr. Warburg,

From what you told me I infer that your friends
appear to be labouring under a misconception concerning the
rediscounting of bills in New York on the part of the Deutsche Golddiskontbank. May I therefore be permitted to give
you a brief report of what has really happened:

After you had to my great satisfaction succeeded
at the time


forming the first RediscountSyndicate for

the Golddiskontbank, the Reichsbank and Golddiskontbank proved
to be sufficiently strong in themselves to meet the then
existing demand to a large extent alone, so that we were not
in a position to use the Syndicate's facilities as much as

we had expected. The commitmentcharge, we had to pay, was
a burden to us, of course, but I wish to expressly acknowledge again the very great service you rendered us at the
time. We fully appreciated and are still gratefully appreciating your efforts on our behalf.

The Golddiskontbank has since continually been
receiving enquiries from quite a number of American Banks

for bills to be discounted in New York. The Bank was approached
in this way by firms who were members of your Syndicate, the
same as by other firms. They all emphasized that they were
anxious to enter into direct relations with the Beichsbank
and the Golddiskontbank. since the Golddiskontbank - in order
to help the German export-trade - has now again extended its,

originally somewhat limited, activity, I spoke with your
brother Max and explained the situation, because I felt to
be under an obligation to you before others. Your brother Max
shared my views as to the advisability, at the present stage,

not to decline any offers of other American Banks, in spite
of the fact that the Golddiskontbank felt to be under an obligation

in the first place to you, dear Mr. Warburg.

As you know, we subsequently arranged with the
International Acceptance Bank a rediscount credit of
2.000.000.-, and we have also made similar arrangements
(partly for a little larger, partly for a little smaller
credits) with three other American Banks. You may be interested to hear that we have hitherto used these facilities
all in all to the extent of 5,1 Million dollars. I quite intentionally name this figure, so that our commitments may
become known through you to the American market. I shall also
take the liberty of reporting to you from time to time the
total rediscount commitments of the Golddiskontbank and
readily authorize you, and even request you, to make such
figures known on your side, so that the American market may
always be accurately posted as to our commitments. This




would specially welcome, as I hear that unauthorized intermediaries appear to be trying now and then, without any
instructions on our part, to interest American Banks for
rediscount arrangements with the Golddiskontbank. I therefore readily authorize you also to make it known that we have
never charged anybody to act for the Golddiskontbank in this
way and that we have hitherto not applied for any rediscount
credit at all. If one day we should have occasion to take
the initiative ourselves with a view to arrange a larger gold
discount credit, we would address ourselves in the first place
to your valued institution.

Permit me to give expression once more to the
particular satisfaction I felt in seeing you here and at the
same time to the hope that the friendly relations existing
between us personally and our institutions may still have
become closer through this interview.
With kindest regards

always yours faithfully
signed: Dr. Hja]ilar Schacht.




SEP 24 1925
September 26ra, 1925,

Dear Ben:

I enclose herewith Dr. Samuel McCune Lindsay's
letter, which I found here on my return, also the c py of
the letter which he has written to Schacht.

Please let me know as early as you can when I
may come over and chat with you about the program to be
developed in connection with Schacht's visit, also what
your advice will be with regard to Lindsay's invitation.

ncerely yours,

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



c,&-ua 62





/uweL; Jai











Zne 2cabemp of Political *ciente




in tbe City

of Reku pork







September 21, 1925.




Mt. Paul M. Warburg,
56 Cedar Street,
New York City.
Dear Mr. Warburg:

Many thanks for your telegram from Washington.
I am sending the enclosed letter to Dr. schaacht
by the S/S. Mauretania sailing tomorrow, and I will call you
up on Wednesday to talk about a cable.
It may be that we can
embody the substance of the invitation in a cable telling Dr.
schaacht that fuller details will reach him in my letter, and
get his acceotance by cable before we can get a reply to the
letter, so that we can announce him and prepare for him a-place
on our program.
I think in view of the topic, and the program
that we halm developed thus far, it would be a fine thing to
have Dr. Schaacht here and that it would be a fine opportunity
for him to meet some of cu representative business and professional
men to say much or little about the present economic conditions
in Germany and the relation of government to business, as well
as tc the outlobk of business development in Germany.
With renewed thanks, and hoping to see you soon,
I am,

Yours sincerely,



ACKNI OVi E00131)


SEP 2G 1925

September 25, 1925.


Dear Ben:

Thanks for your letter.

I quite agree with

your conclusions concerning Doctor Schacht's attitude
towards Doctor Lindsay's invitation, but let us get together about the program before there is a mix-up.
The Council on Foreign Relations would like

to give Mr. Schacht a dinner.
cept that.

I strongly urge that he ac-

There is no publicity connected with these

dinners, and talks are entirely informal,
might be very useful.
Si cerely yours,

Benjamin Strong, Esq.,
Federal Reserve Bank,
33 Liberty Street,
New York City.











rebruary 25th, 1927.

Dear Ben:

I inquired from Ben Jr, how you were getting
along and am delighted to receive such favorable news
through him. Keep it up, and by the time that we shall return from the Pacific Coast, may be we shall see you in
New fork full of your usual

vim (which is so hard to con-


i was much interested to hear that Governor
Norman paid you a visit. I am sure you must have had some
fascinating talks with him, as always.

But it is one


thinghadvise what should be done logically, and the other
what foolish people will do, and this factor of human stupidity, that enters into all calculations, is a very disturbing one.

My stay here has been ruined by those fool
articles of Garter Glass. I cannot say that "they got under my skin", because I have learned from a personal point
of view to disregard all this petty stuff,
that worries me is that


but the thing

and Glass are permitted to

lay down the only basis, on which the future historian will





build the record;

and while I sympathize with Glass

in his disgust at Col. House's book, he and vvillis

together have gone the same path as Professor Seymour
and col. House went, that is to say, they wrote a
"romance" and presented it as "history".


vanity, as presented in his book, was.deplorable;

but Glass and Oaths are more than vain. They are wittingly spiteful, and while they have their hand in the
other fellow's pocket, they call him names at the same
time. It is


very well to turn the other cheek;

but I find, if you do it too often, as I have done,
people are getting too "cheeky".

I have laid the foundation here for a
comprehensive answer, not by getting into a controversy with them on personal lines, but by presenting

however, what ultimately I shall do with this

production of my "crAnium", is doubtful. My waste-paper
basket has swallowed more than one attempt on similar
lines. This time, l am, however, in earnest!

Don't bother to acknowledge this; it is
nothing but a greeting and an expression of my great
pleasure at hearing such good news from you.

By the Way, 1 congratulate you upon




mcGarrants accetance. If the board did not see its
way clear to act on the lines that you and i had discussed,
you will in any case find in McGarrah a man, who will
be a very genial associate.

Nina joins me in fondest greetings.
Always sincerely yours,

hon. Benjamin Strong,
Stuyvesant Road,

Biltmore Orest,
Biltmore, N. L.



March 17, 1927.

Dear ben=

Thank you for your two letters which
I was very glad to receive. The best part is that you
are giving me such good news about your progress. All
the rest is less important.

Your advice is, as usual, wise. whether
I shall follow it, as usual, is, this time, doubtful.
I have finished an article, and spent most of my leisure

over it, instead of being Owise

guy" and play. Whether

I shall have the heart of relegating it to the wastepaper
basket, I


not know. I shall know better when 1 reach

ork, and shall have had some time in between to

mull it over.

Basil Miles wrote me, but i had already
left for California. 1 shall be glad to talk to him when

I return. I ramanber him very well and know all his excellent qualifications.

Nina joins me in wishing you everything
that is nice and pleasant.
Always c





MAR 26




June 28th, 1927.

Dear Ben:

Thanks for sending me the redraft of the
Pratt resolution.

Did you not want to say in the sixth

line "but there was only one citizen who coupled a full


I assume that the word "only" was left

out through a typographical error.
Sincerely yours,

Benjamin Strong, Esq.,
Federal Reserve Bank of New York,
New York.





W. T. 11. 1 NM 2-28












I q 2- V 135



















June 29, 1927.

Dear Ben:
Do you remember the "Convention

Providing for the Establishment of an International
Gold Clearance Fund", which your humble servant originated in 1916 when on his errand to South America, a convention, which was agreed to by several South and
Central American states and our State Department, and
was finally killed in the United States Senate with the
connivance - or shall I spell it "con-knife-ance" of one
Benjamin Strong?

It occurs to me that where the

four leading centralbanks are in conference it might
not be amiss ta take up the thought anew, and study its

The Convention would do no more than

to surround with international protection/in case of
war what you are doing today.

As you are situated

today, conceivabl7 at least in case of war, gold held
by you for account of other central, banks, or gold held

by other central banks for you, would be confiscated or

If technically and legally the custo-


dian would be the representatives of a large group of
powers (all signatories to the Convention, and all obligated by it to respect the right of the trustees to hold
this gold as a sacred trust fund, even in case of war) I

think that the central bunks would be better protected.
In any case, it could only improve their present status.
R. S. V. P. (which means, - Reflect
vous plait!)


ely yours,

Hon. Benjamin Strong,
FederalReserve Bank,
33 Liberty Street,
New York City.


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