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I want to add that I shall not fail to take this matter up with the State Department, this question being rather of a political nature, as it is stated above, and I dare to express my earnest hope that the United States Government will find a certain way not to prevent us from executing this payment on the open market, especially in view of the fact that this is the first payment after the declaration of the Omsk government that they undertake to fulfil all Russian national obligations.

For this payment the funds are provided, and this being indeed the last payment on our financial program up to the 1st of May 1919 for the credit operations on the open market in this country, it would be the very greatest pity should all our efforts to maintain our obligations to private concerns in this country, as well as the funds expended to meet our liabilities during the last year, be denied all their purpose should we not meet our obligation on the 10th of January, while a possibility still exists to pay this interest.

I consider it my duty to bring to your attention yet another fact. As you certainly remember on the 1st of May we have to pay the principal on our $11,000,000 short notes issue, for which a collateral of approximately Rs. 145,000,000 in 52 per cent war loans was deposited. The only way to pay this principal, if some new credit will not be granted, in the meantime, to Russia, is the realization of the collateral.

You will understand perfectly well what influence our failure to pay the interest just before we have to sell our deposit will have on the market of the Russian loans in this country.

The success of the realization of our war loan will depend very much, if not mainly, on the attitude of the National City Bank in this matter and I do not think that they will take great interest in this transaction if we shall enter in the open market after a failure to pay the interest on the 10th of January. I shall be very glad to take this matter up with you again, or with any other governmental department, in order to try and reach a certain common understanding to find the way of meeting this particular obligation of ours, failure of which, in my most sincere opinion, will cause the greatest harm to our national interest.

Believe me [etc.]

File No. 861.51/495c

S. UGHET

The Acting Secretary of State to the Secretary of the Treasury

(Glass)

WASHINGTON, January 2, 1919.

MY DEAR MR. SECRETARY: There has been considerable correspondence between the Treasury and the State Department on the question of payment of interest on the Russian obligations held by the United States amounting to about $187,000,000.

In view of the confused conditions which now exist in Russia, and of the political conditions involved, I should like very much to confer with you on the general subject, especially as to the question of deferring for the present, the collection of interest due on Russian obligations held by this Government on and after November 15, 1918. I should also like to discuss with you the question of making available to the Russian authorities in this country, the funds which fall due

to them from time to time, such as for example, the charter hire of Russian ships in the service of the Shipping Board.

Some decision will also have to be reached as to what action we should acquiesce in relative to the interest payable on $50,000,000 credit advanced to the Russian Government by the National City Bank of New York.

I am [etc.]

File No. 861.51/450a

FRANK L. POLK

The Acting Secretary of State to the Secretary of the Treasury (Glass)

WASHINGTON, January 7, 1919.

MY DEAR MR. SECRETARY: Referring to our conference yesterday regarding Russian bonds and obligations in this country, I believe the situation is such that it would be unfortunate if we offered any objection at this time to the payment of interest on the $50,000,000 of Russian bonds due January 10, 1919. I believe political considerations should prompt us to acquiesce in the payment of this interest and shall be glad to know that you concur. It strikes me as especially important that no action should be taken which might affect Russian interests unfavorably until the general question of the relation of ourselves and the other Associated Governments towards Russia is more clearly defined.

I am [etc.]

File No. 861.51/451

FRANK L. POLK

The Assistant Secretary of the Treasury (Rathbone) to the Acting Secretary of State

WASHINGTON, January 8, 1919. DEAR MR. POLK: I have the honor to acknowledge the receipt of your letter of the 7th instant addressed to the Secretary of the Treasury, confirming the opinion which you expressed at yesterday's conference, namely: that in the judgment of the Department of State the political considerations involved were so important as to make it inadvisable to prevent the payment of interest on the bonds of the Russian Government held by the public and which mature on the 10th of this month. While from a strictly Treasury point of view the Secretary of the Treasury would feel obliged to object to the payment of this interest, he appreciates the importance of the political considerations which you have urged as controlling and will accordingly make no objection to payment of the interest above mentioned. I may add that this Department concurs in your view as to the importance of these political considerations. ALBERT RATHBONE

I am [etc.]

CHAPTER II

EFFORTS TO STABILIZE RUSSIAN CURRENCY

Proposals for Financial Assistance to the Provisional Government of the Northern Region and for the Provision of Currency in Connection with Allied and American Operations in Russia-British Plan of an Office of Conversion at Archangel Issuing Notes Based on Sterling Deposits

File No. 861.00/2478

The Ambassador in Russia (Francis) to the Secretary of State

[Telegram]

ARCHANGEL, August 11, 1918, 10 p.m.
[Received August 13, 3.20 a. m.]

359. Also for Secretary of the Treasury:

Still nothing from Moscow, Vologda, or Petrograd, nor from Department since your August 5, 7 p. m.1 Allied forces advancing down railroad toward Vologda and upriver toward Kotlas, but progress necessarily slow because Allied forces small and resistance unknown. In an engagement on railroad several days ago three French officers killed, but Red Guard defeated and about fifty thereof surrendered and General Poole talks of enlisting them in Allied army.

2

Quiet here where new government organizing, but opposition thereto not wholly eradicated. I am advocating business relations between [with it?] because it appears as most meritorious movement against German control of Soviet government faction in Russia. My inquiry [Chaikovski?] President unequivocally stated that new government has only two main objects, namely, resurrection of suffering Russia and aggressive resistance to Germany; this statement made in response to one from me that Allied chiefs would recommend no recognition or no cooperation and French [financial?] assistance to any Russian government observing Brest peace or any peace unauthorized by Allies.

Financial assistance essential to perpetuity new government. Establishment Allied bank, Archangel, suggested and apparently favored by British, but I expressed opposition thereto because of unlimited liability in connection therewith, because also moral responsibility, and furthermore thought Allied bank would be used by

1

Not printed.

See vol. II, p. 507.

57

1

Bolshevism and all anti-Ally Russians as justification of charge that Allies are planning to selfishly appropriate Russian resources and commerce. My opinion is that Russians should therefore be taught and aided to resurrect Russia. French Ambassador and Italian Ambassador agreed with me, but Lindley 1 was silent. Minister of Finance will present financial scheme to-morrow; if provides for joint guaranty of bonds by Allies upon which to base bank, it is quite feasible [possible?] I shall be disposed to recommend same with proper safeguards as to management and right of supervision, bonds to be secured by whatever applicable revenues available and by whatever rents for property, such as forests, mines, railroads, etc. If, however, security impossible I think assistance advisable to extent $10,000,000, which at present exchange rate equals Rs. 100,000,000. Our proportion would not exceed one third and even less if Italy and Japan participate. Japanese Chargé d'Affaires not yet consulted. What are our relations with Japan? Official announcement forwarded by wireless states understanding reached and Japanese and American troops advancing into Siberia.

FRANCIS

File No. 861.00/2504

The Ambassador in Russia (Francis) to the Secretary of State

[Telegram]

ARCHANGEL, August 13, 1918, 8 p. m.

[Received August 15, 9.45 a. m.] 364. Since your [omission] nothing from Moscow, Petrograd, Vologda except British Embassy received cable to-day from Stockholm dated 8th saying British and French consuls and military missions arrested by Soviet government, August 5, and all Entente subjects being held as hostages.

New government here needs currency badly and wishes Allied Governments to guarantee payment Rs. 15,000,000 in six months, 5 per cent bonds, to be sold for currency only in hope of drawing rubles from hiding. Allied chiefs all recommending to their governments request be granted. Guaranty joint and several, but at present rate of exchange total only million and a half dollars, so that if this is joint guaranty, which I earnestly recommend, our liability limited to half-million dollars, which if lost would be proper charge against six-millon-dollar allotment for the purchasing supplies, but no financial risk because State Bank, which is maker of bonds, will set aside twenty million rubles worth merchandise to

'Francis O. Lindley, British Commissioner in Russia.

secure guarantors, and such merchandise be marked and its identity preserved.

Would assume responsibility of action if financial risk only question involved. But such action by Allies would not be recognition of the new government, but would be continuance of our policy to establish business relations with local authorities where our representatives reside. Unconfirmed intercepted wireless states Soviet government, Moscow, overthrown, but if untrue is only anticipatory. Furthermore if the Soviet government still exists, relations between it and the Allies are equivalent to state of war. German officers certainly command Bolshevik troops opposing Allied forces, consequently can see no political objection to authorizing guaranteeing of bonds.

If bonds sold and Rs. 15,000,000 realized therefrom, that provides insufficient [funds] for governmental and commercial needs; consequently bank requests Allied guaranty of bank note issue maximum Rs. 200,000,000 of which of which more issued [sic]. Fifteen million ruble guarantee safeguards arranged by myself, therefore I think same effective.

Crosby reported in Europe. Is it possible for him to come here? Lindley thinks Allies have joint financial agreement, but if So, I am unadvised. Crosby could come direct to Archangel from London now and if navigation should close early could go by sleds to Murman, whence navigation continues. Navigation closed last year November and never closes before October.

FRANCIS

File No. 861.00/2543

The Russian Ambassador (Bakhmeteff) to the Assistant Secretary of State (Phillips)

WASHINGTON, August 21, 1918. MY DEAR MR. PHILLIPS: Enclosed two copies of the memorandum on questions of currency to be used in connection with the proposed assistance to Russia. I will appreciate if you will forward one of these copies to the Secretary of Treasury.

Believe me [etc.]

[Enclosure]

B. BAKHMETEFF

Memorandum on Currency in Russia

One of the most important problems, which presents itself in connection with the recent decisions of the United States to render active assistance to Russia, is that of currency to be used. It is, first of all, the question of the kind of money with which the American-Allied troops will make payments in Russia. Further, and far more important, is the question of currency to be

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