550.S1 Monetary Stabilization/57½: Telegram
The Acting Secretary of State to President Roosevelt
27. For the President from Acheson. The following message prepared by Baruch after consultation with Secretary Woodin represents their views and is concurred in by Harrison, Douglas85 and me:
Since our message to you yesterday86 telegram from Hull87 has been received and communicated to you. While picture presented in that cable must necessarily be interpreted in the light of the qualifying clause “if representations are reliable”, even so the situation has become considerably more disturbed than when our message was sent yesterday owing to continued decline in the dollar, which is now about 77¢, and rise in sterling to over 4.42 this afternoon. This fluctuation has taken place in the face of relatively small amount of dealings and is due in large part to the fact that there are no buyers of dollars in the market. The exchange market here seems to confirm representation in Hull’s message. Certainly so far as the guilder is concerned, because there are practically no buyers in this market of forward guilders, indicating a real fear that Holland is going off gold.
In other words, present indications are that the dollar is under continuing pressure due to a flight of capital from this country in different forms, such as a direct flight of capital and an indirect flight by exporters retaining foreign currencies received for goods sold. And it is also due to the fact that there are no buyers of dollars to take up the offerings from others. It seems likely therefore that unless something is done promptly the dollar will continue its decline in relation to gold currencies and if that happens those countries now on gold will be forced to devalue their currencies, which would probably [Page 662] cause a rise in the dollar in relation to those currencies. If therefore it is desired that we maintain a depreciation of the dollar as against gold currencies, it would appear necessary promptly to take some steps that will avoid the necessity of those other countries abandoning gold. If present tendencies are allowed to continue and the dollar declines still farther in respect to gold currencies, a rapid rise in the dollar may be forced upon us by the action of others and to our own detriment. We feel therefore that rather than risk such results of a continued decline in the dollar, it would be better now to check the decline through temporary measures to limit extreme exchange fluctuations.
In this connection and referring to our telegram of yesterday about unilateral action versus tripartite action, it should be pointed out that the tripartite arrangement88 proposed in London 2 weeks ago contained a declaration by France to remain on gold. Furthermore that proposed arrangement was made temporary and flexible in character first, by specifying that the arrangement would be effective only pending developments of the Economic Conference, which expression can if necessary be clarified; second, by limiting the expenditure of gold by any one country in the arrangement to a specified amount, approximately $60,000,000 gold; and third, by providing that the domestic requirement would permit any one of the three countries to take whatever affirmative action might be necessary at home, even though it should result in affecting the exchange rates. If this temporary arrangement should be terminated because of the fact that any one of the three countries had lost $60,000,000 of gold or for any other reason, it would be subject to renewal only by mutual agreement of all three parties at the same or new rates, or for the same or new amounts of gold. Consequently, if the dollar should be weak, in an effort to support it at the minimum rate we should lose $60,000,000 of gold the agreement would automatically cease and be subject to renewal at a new rate. If no new rate is mutually agreed upon the arrangement would terminate. This arrangement, therefore, does not in fact stabilize any one of the currencies, but rather provides a means by which exchange fluctuations might be somewhat levelled out temporarily pending developments of the Conference, which provision would enable us through trial and error to feel the way toward those points at which some day stabilization might be achieved. If mutually approved it would probably remove at least for the time being the threat of abandonment of the gold standard by present gold standard currencies referred to in Hull’s cable, an event which would inevitably force a rise in the price of the dollar in terms of those other currencies. Furthermore, it would probably do much to avoid any possibilities of combined action against the United States by trade blocs, quota, etc.
In view of all these conditions supplemented by the situation as presented by Hull in his cable of yesterday, we therefore feel that it is advisable now to do two things:
(1) Tighten up exchange control so as to further restrict an outflow of capital as far as that may be possible and specifically to instruct Hull to advise the British that we expect to do that, and that we would expect them to take similar measures on their part, in accordance [Page 663] with their own suggestion, not only to avoid speculation in the dollar, but to avoid all speculative transactions in exchanges; and (2), to reopen consideration of the temporary and flexible tripartite arrangement recently proposed in London on the basis of the present market level, actual rates and threats to be worked out over there subject to final approval of Washington, and without any diminution in the amount of gold agreed to be expended by each bank at the rates agreed upon. We think we can afford to stand pretty firm on this question of amount and present market rates as a basis of discussion, because if accepted it will appear to the public mind as an advantage from the 2 weeks’ delay, and if not accepted, will afford us fairly complete protection against the charge that the Conference has failed because we have refused to do anything.
In making this recommendation we have not had the benefit of any recent suggestions or recommendations from Sprague or Warburg, or from any member of the Delegation except as might be inferred from Hull’s cable of yesterday. Our recommendation, therefore, should naturally be considered subject to their comments and suggestions.
- [Acheson]
- Phillips