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His Majesty's Government understand that the suggestion has been made that if the United States takes part in the scheme, the Federal Reserve Bank of New York should hold further editions of any new rouble notes purchased from office conversion by the United States for their own needs. This plan would be quite acceptable to the British authorities.

It may be further pointed out that the guarantee proposals under consideration assume a concurrent policy of setting up a responsible civil Russian government in northern Russia. They have also been carefully designed in order to be perfectly free from any idea of economic penetration or from any political complications, and other proposed alternatives have appeared open to objection on these grounds. The present plan has been put forward without any ulterior political motive of any kind and is simply an honest attempt to supply northern Russia with some kind of stable medium of exchange.

As the question of providing a currency medium in northern Russia is now becoming somewhat urgent, the British Chargé d'Affaires would be grateful if he could be furnished with the views of the United States Government on the proposed scheme as soon as may be possible.

As the Department has already been verbally informed, the British Embassy are advised that, if the United States authorities considered it desirable themselves to take the initiative in making financial arrangements for Siberia, such a proposal would be most acceptable to the British Government, since the remoteness of the Siberian theatre of operations from Great Britain appears to make it undesirable that the British Government should themselves accept direct responsibility for currency required there. WASHINGTON, September 24, 1918.

File No. 861.51/359

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

[Telegram]

ARCHANGEL, September 24, 1918, 7 p. m.

[Received September 25, 10.20 a. m.]

423. Also for the Secretary of the Treasury:

1

Sovereign government needs funds. No reply my 364, August 13, 8 p. m.,1 recommending we join England and France guaranteeing Rs. 15,000,000, 5 per cent, six months, loan secured by merchandise. Lindley says British refuse render aid unless financial scheme out

2

1Ante, p. 58.

'Francis O. Lindley, British Commissioner in Russia.

lined in my No. 401, September 14, 4 p. m., accepted. When I said I thought reserve should be held America as well as England, replied British expected us to arrange financial scheme for Siberia. What reply made proposition submitted through British Ambassador at Washington? I think proposed scheme excellent if provided for American reserve as well as British. Lindley thinks British Government wedded to plan and will insist upon its adoption, saying England large creditor of France and Italy, but I reminded him United States was also, and had made large advances to England which he admitted, but claimed such advances not exceeding English advances to her allies.

FRANCIS

File No. 861.00/2798

The Ambassador in Great Britain (Page) to the Secretary of State

[Telegram]

LONDON, September 26, 1918, 4 p. m.
[Received September 26, 1.50 p. m.]

2228. Rathbone from Crosby:

570. Referring to my No. 535.1 British Treasury has arranged for the issue of ruble notes in northern Russia independently of the plan proposed by the French. Full details going to you by mail to-morrow.

PAGE

File No. 861.51/361

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

[Telegram]

ARCHANGEL, October 1, 1918, 3 p. m.

[Received October 3, 12.40 a. m.]

433. Also for Secretary of the Treasury:

Referring to my 401. September 14, 4 p. m., and 423, September 24, 7 p. m. Lindley says British Government has its heart set on financial scheme and has no objection to modifying plan in accordance with my contention, that is to build reserve fund in pounds sterling London or dollars in New York thus permitting sellers Russian products to receive pay therefor in sterling or dollars and enabling us to procure rubles here by depositing dollars in reserve fund there. For instance, if we require a hundred thousand rubles, State Bank issues new currency here and we deposit dollars in reserve there at the rate

1

See Ambassador's No. 1961, Sept. 17, 9 p. m., ante, p. 68.

of eleven and nine-tenths cents per ruble, which is the equivalent of forty rubles to the pound when sterling is worth four seventy-six New York as now and has been for some time. This scheme for stabilizing gold coinage [exchange of?] ruble at eleven and nine-tenths cents or their [forty] to the pound.

Lindley remained after conference yesterday, and after saying his Government had advised him that it would not object to reserve in America, told me confidentially his Government had decided to begin operation and man en route here for that purpose; has not told French Ambassador because relying on preparing another scheme which Lindley thinks is Allied bank; if so I am not inclined to recommend.

British have need for tens of thousands of rubles daily for unloading ships. Labor exorbitant. The British receive and distribute all supplies even to American soldiers, French and Italians. Currency becoming scarce. Archangel issue circulating; Bolshevik government here issued one hundred million in government scrip, redeemable in rubles, but only circulated twenty-six million thereof, when deposed taking the remainder with them. On arrival I advised the government to stamp notes in circulation thus preventing Bolsheviks from using seventy-four millions; sovereign government now stamping Archangel issue. British claim must have currency to pay laborers, etc., consequently propose stabilizing financial scheme; do you see any objection thereto? Old rubles will be converted into new through conversion office and the rate of interchange fixed from time to time so that old rubles having no stable value will disappear from circulation. Allied soldiers will be paid new rubles and the supplies imported by the Allies will be sold exclusively for new rubles.

FRANCIS

American Plan of an All-Russian Currency Based on Commodity Transactions-Execution of the British Plan with American Consent; Difficulties Encountered-French Plan for a Similar Emergency Currency Issue in Siberia-Protest by the Russian Ambassador against Measures Taken without Consultation of the Omsk Government-Shipment to Vladivostok of Notes Printed in the United States for the Provisional Government Detained by the American Government

File No. 861.51/392a

The Secretary of State to the British Chargé (Barclay)

The Secretary of State has the honor to acknowledge the receipt from the British Chargé d'Affaires of the memoranda numbered 980 and 1053, dated respectively September 5, 1918, and September 24, 1918.1

1Ante, pp. 66 and 69.

These memoranda refer to certain proposals made by the British Government for providing a suitable currency medium for the Archangel and Murmansk regions in northern Russia. It is stated that His Majesty's Government proposes "to found a local office note issue under Russian auspices attached to such Russian governmental authorities [authority] as the Allies may recognize which will issue a new rouble note secured to a limited extent by obligations of such governmental authority but in the main by sterling reserve held at the Bank of England. This reserve would be built up by the purchase from the Russian office note issue for sterling at a fixed rate of exchange all notes required by the Allies in north Russia. The reserve would be inalienable property of office note issue and would be available to redeem notes at the same rate of exchange as that at which the notes were issued."

It is stated that the proposal of His Majesty's Government does not involve any Allied guarantee and that the British Government would be able to proceed without the active participation of the United States.

It is further stated that "the guarantee proposals under consideration assume a concurrent policy of setting up a responsible civil [Russian] government in northern Russia." The memorandum of September 24 adds that the British Embassy is advised that, if the United States authorities consider it desirable to take the initiative in making financial arrangements for Siberia, this procedure would be acceptable to the British Government.

The views of the United States Government on the proposed scheme are briefly as follows:

The problem in connection with Russian currency both in north Russia and in Siberia is practically identical. In each case it is a question of creating a circulating medium that will be accepted by the people. Probably no circulating medium will generally be accepted at its nominal value unless backed by commodities on the spot so that the purchasing power of the new medium may be demonstrated. It will be an advantage if any new circulating medium should be such as can ultimately be adopted or taken over by a stable Russian government. The ruble originally had a gold value of 50 cents. It is now selling at from 10 to 15 cents. If a new and distinctive issue of rubles, backed by commodities, is now put out on the market at what the old rubles are selling, it would be necessary ultimately to redeem that ruble at a face value of 50 cents which would involve considerable and unnecessary losses.

The problem, therefore, is to put out a new and international ruble backed by commodities and to put that ruble into circulation at approximately 50 cents. This can, probably, be done if, as stated above,

the international ruble is backed by commodities so that its purchasing power may be at once demonstrated.1

The plan proposed by His Majesty's Government, which, the United States Government understands, involves the establishment of a new Russian currency through a so-called "conversion office," this currency to be backed in part by sterling deposits carried in London, presents, in the opinion of the United States Government, three objections:

1. The currency is being put out on the market at its approximate market value and unless it be ultimately redeemed at its face value will undoubtedly at some future time lead to an impression of deception in view of the fact that the note is denominated a ruble note. If so redeemed it will involve the loss pointed out above.

2. This currency is being issued solely under British auspices though it will receive whatever circulating value it develops through the presence of commodities brought not only from Great Britain but from the United States and France.

3. The proposal of His Majesty's Government does not take into account the desirability of establishing a similar currency in Siberia as is established in northern Russia, so that the systems established may fit into each other and be taken over subsequently by any stable Russian government.

It is not entirely clear to the United States Government what is meant by His Majesty's Government's reference to "the guarantee proposals under consideration." Further explanation of this feature of the British Government's proposal is earnestly desired by the United States Government.

The United States Government notes with pleasure the declaration of the British Government that if the United States authorities consider it desirable to take the initiative in making financial arrangements for Siberia this procedure will be acceptable to the British Government. This matter will be discussed in a subsequent memorandum.

WASHINGTON, October 5, 1918.

File No. 861.51/403

Memorandum by the Third Assistant Secretary of State (Long) October 7, 1918.

The Russian Ambassador called to-day and said that there were Rs. 3,900,000,000 with the American Bank Note Co. in Provisional

1

For the relationship of this suggestion to the War Trade Board's project of a trading corporation, cf. the aide-mémoire of Oct. 10, post, p. 147.

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