File No. 841.51/67
The Secretary of the Treasury ( McAdoo) to the Secretary of State
My Dear Mr. Secretary: The President has transmitted to me the letter dated July 1,1 addressed to. you by Colville Barclay, Esq., for the British Ambassador, making, under instructions from Mr. Balfour, various representations as to British financial requirements, and a formal request for certain specified financial assistance. I beg to request that you communicate the following reply to the British Ambassador:2
It is true that the Secretary of the Treasury did not know that there was danger that the ability of His Majesty’s Government to effect payments in America would be in jeopardy; nor could the Secretary of the Treasury, without far more complete and detailed information than has been furnished him by the financial representatives of the British Government, have been aware of this. The Secretary of the Treasury has received the information contained in the note of the British Ambassador with the gravest concern.
As to the probable effect which would be produced on the progress of the war by a collapse in British exchange, it is not clear from the note in question that the maintenance of British exchange at any given figure is in the mind of Mr. Balfour nor that the United States can intervene in the matter except in so far as it automatically intervenes through the making of the loans that have been or may be made to the British Government to cover purchases of supplies required to be made in America.
In respect to the burden borne by the British Government for nearly three years of financing “the whole of the Allied powers,” it is in the general knowledge of the Secretary of the Treasury that large sums have thus been lent to other belligerents, but specific information asked concerning this point has not yet been laid before [Page 540] the Secretary of the Treasury: neither in respect to the amounts lent to each of the other belligerents, nor in respect to the rates of interest paid by those belligerents, nor in respect to any other conditions which may have been attached to the making of such loans. A figure of approximately $5,000,000,000 has been stated as covering the amount loaned by the British Government during nearly three years of the war, and” it may be noted that the request of the British Government alone for assistance from the United States Government is at the rate of $3,000,000,000 per annum, and that the requests from other governments added to those of the British Government would, if acceded to, carry the loans of the United States Government to far more than $5,000,000,000 in one year.
The Secretary of the Treasury regrets that Mr. Balfour left with the understanding that the United States Government would relieve the British Government definitely of the expenditures in the United States of the other Allied powers, and that it should have been confidently expected that the needs of the British Government, as communicated on May 3,1 and the specific assistance desired for June, as indicated in the Ambassador’s note of May 29,2 would be met. It is to be regretted that general expressions of good will and a general discussion of the needs of foreign Governments, and of the possibility of the United States Government’s meeting these needs, should have been construed as positive undertakings on the part of the United States to meet requirements which had not then been stated in definite terms. In the conversation between the Secretary of the Treasury and Mr. Balfour, as well as with other representatives of his Government, it was made clear that the action of the Secretary of the Treasury was limited wholly by the act of Congress approved April 24, 1917, in which the Secretary of the Treasury was authorized, with the approval of the President, to make loans to Governments at war with the Imperial German Government. Had the Secretary of the Treasury undertaken to meet only the specified requirements for a period of six months of the belligerent Governments which have presented a schedule of the advances desired by them, he would have at once passed beyond the statutory limit of $3,000,000,000, by which he was of course wholly bound.
In an endeavor to meet with the greatest possible promptitude the indicated urgent demands of the British Government, the Secretary of the Treasury, within twenty-four hours after the approval of the above statute by the President, loaned to the British Government the sum of $200,000,000, before receiving from that Government any statement indicating its needs either for six months or for any other period. Thereafter, under date of May 3 the statement of those needs for six months was received and on May 5, while Mr. Balfour was still in the United States and subsequent to his conference with the Secretary of the Treasury, a further loan of $200,000,000 was determined by the Secretary of the Treasury, and a reply to the Ambassador’s communication of May 3 was written in the following language:
I have the honor to acknowledge receipt of your communication of May 3 relative to the making of further loans to your Government. Without dwelling [Page 541] on the larger matters referred to by you, which I shall be happy to consider at the earliest moment, it gives me pleasure to say that, having secured the sanction of the President in the premises, I am prepared to make a loan to your Government of $25,000,000 to-day, and a further loan of $25,000,000 on Monday the 7th instant. These loans will be arranged and evidenced in a manner similar to the loan of $200,000,000 to your Government, negotiated on April 25.
And on the same date, May 5, Mr. Balfour wrote the Secretary of State expressing, on behalf of the British Government and on his own behalf, appreciation of the promptitude with which the Secretary of the Treasury had met the “immediate financial obligations” of the British Government,1 but making no reference to any understanding or expectation with reference to the larger matters referred to in the Ambassador’s letter of July 1.2
Subsequent advances in various amounts have from time to time been made to the British Government, each independently of the other, the whole aggregating at this date the sum of $685,000,000, a sum so great that the Secretary of the Treasury cannot believe that the British Government, however dissatisfied it may be with the extent of the financial assistance rendered by the United States, would have been better satisfied with any possible further direct recourse by the British Government to the American market. In connection with none of these advances has any assurance been given of the ability of the United States to meet the requirement of the British Government, outlined in the letter of May 3, for advances in the sum of $1,500,000,000 in the six months’ period.
The British Ambassador refers to the bringing down of gold from Canada, the sale of securities and the withdrawal by American banks of sterling balances in London. However much the Secretary of the Treasury may regret, as he does regret, the necessities thus laid upon the British Government, the transactions have not entered into the dealings between the two Governments, except that when the great urgency of the matter was presented to the Secretary of the Treasury he did authorize, without such a consideration as would otherwise have been proper, immediate loans to the British Government on the representation of its agents that these loans would diminish the acuteness of the crisis which had thus been presented. If from what the Ambassador says with reference to these matters, it is to be inferred that the British Government desires to look to the United States, not only for the advances indicated in the communications referred to under date of May 3 and May 29, but in addition thereto for whatever sums may be necessary to pay off maturing indebtedness of the British Government in the United States though incurred before the entrance of the United States into the war, the Secretary of the Treasury regrets that he can give no assurances in this respect.
The British Ambassador, in concluding his letter of July 1, presents a formal request for the following financial assistance—
(1) That the commitments which his Majesty’s Government has undertaken in this country on behalf of Belgium and Russia may constitute a first charge on the first loans made to these two countries, and may be repaid to Great Britain with the least delay possible.
The Secretary of the Treasury does not feel that such conditions should be imposed upon the Governments of Belgium and Russia without consultation with those Governments.
The actual state of affairs as to the Belgian Government is this: a credit has already been established for that Government of $45,000,000 to be taken at the rate of $7,500,000 per month. The Secretary of the Treasury is informed that a similar monthly sum has heretofore been loaned to the Belgian Government in equal parts by the British and French Governments. The sums thus provided are strictly used for the purchase of foodstuffs for Belgium, and it would seem to defeat the humanitarian objects heretofore cherished, it is believed, both by the British Government and by the American Government, if these sums should now be required to be repaid by the Belgian Government to the British Government. In respect to additional requests for loans recently made by the Belgian Government, sufficient information has not yet been received upon which to base action of any kind whatever.
In respect to the Russian Government, the loan already made to it has been in large part allocated for orders for materials pressed with the greatest vigor upon the American Government, not only by the Russian representatives but also by American officials in Petrograd. The cost of these new orders, plus amounts shown by Russian representatives as being already overdue for purchases in the United States other than those guaranteed by the British Government, will absorb the total of the $100,000,000 credit already established in favor of the Russian Government. As to the amounts paid by the British Government on Russian account, and as to the amounts remaining unpaid guaranteed by the British Government on Russian account, no request by the Russian Government has been made that funds should be advanced to it to cover these sums.
(2) That an arrangement may be come to immediately between the United States Treasury and the British agents in America denning the amount of assistance which can be granted to His Majesty’s Government for the months of July and August and that the first instalment for the month of July ($100,000,000) may be made available by the 4th July at the latest.
The Secretary of the Treasury takes pleasure in stating that, on July 5 (the 4th being a holiday) he authorized the advance of the desired $100,000,000; and that he is now giving consideration to the matter of making a further loan of $85,000,000 during the month of July. He will, as early as possible, notify the British representatives of the decision upon this point.
(3) That assistance may be given to cover the amount of our overdraft with New York bankers amounting to about $400,000,000. It was explained to the Secretary of the Treasury in April and again in my communication of May 3rd that this overdraft had been incurred mainly in order to enable our other allies to carry on and he agreed that this sum might be included in our application and regarded as a first call on the credits under the loan.
The Secretary of the Treasury is taking the whole subject of the $400,000,000 overdraft under consideration, but no immediate determination can be made. It is true that the Secretary of the Treasury [Page 543] stated to Mr. Balfour that this item might be included in a statement to be laid before the Secretary of the Treasury of the amounts which the British Government desired to borrow from the United States Government. Not only was this item one which would receive consideration, but, indeed, the Secretary of the Treasury stated that any items whatever which the British Government desired to be laid before him would receive due consideration. But no commitment was made by the Secretary of the Treasury concerning any item, whatever its nature, which was suggested for inclusion in the statement then being prepared by the British Government for submission to him.
Cordially yours,