Pierre Jay to William G. McAdoo

Title

Pierre Jay to William G. McAdoo

Creator

Pierre Jay

Identifier

WWP18544

Date

1917 March 3

Description

Pierre Jay writes William G. McAdoo regarding relations between the government Assay Office and the Federal Reserve Bank.

Source

Benjamin Strong Jr. Papers, New York Federal Reserve Bank

Language

English

Text

Dear Mr. Secretary:
Governor Harding advises me that he has referred to you the suggestions I made a fortnight ago concerning certain changes in relations between the Assay Office and this bank which would give us greater facility in dealing in gold, especially in regard to the international aspects of the situation, and has asked me to write you direct and at length on the matter, which I now take pleasure in doing.
Three changes are suggested, having for their object -

(1) To enable us to act with greater facility and without loss in earmaking gold for, and shipping gold to our foreign agents, and

(2) To enable us to purchase whatever foreign gold coin or fine gold bars are offered to the Assay Office in round amounts of over $1,000,000

With respect to (1), under the terms of the agreements now in process of negotiation with the Bank of England and the Bank of France, we agree to earmark gold either in coin or in United States mint gold bars, for our correspondent at their bullion value. In the case of bars we are obliged to charge our correspondent the Assay Office charge for bars of 50 cents per $1,000., and if such bars are later credited to our correspondent we are obliged to charge it the Assay Office charge for remelting of $1.00 per 1,000 ounces. The essence of each of the agreements above referred to is that each bank shall undertake for the other to perform similar services on exactly similar bases. When the bBank of England or the Bank of France earmarks gold bars for this bank there is no deduction for charges, as would be the case in New York, nor, when such bars were returned to our credit at the Bank of England or the Bank of France would there be any charge to our account similar to the re-melt charge here.We shall probably usually want to earmark gold bars rather than gold coin owing to the uncertainty as to whether the coin we get from the Subtreasury in exchange for certificates will be new coin orf full value or coin slightly abraded.Frankly, we have felt a little embarrassed at having to subject the Bank of England and the Bank of France to these charges in handling gold for their account since they have no similar charges to subject us to when we ask them to perform similar services for us.In our proposed relations with these institutions, and the same would be true of others with which we might make similar arrangements, the transactions contemplated are of such arrestricted nature that in settling balances we would not, like the ordinary commercial bank, be able either to remit in exchange or to ship gold, whichever might be the more profitable after taking into consideration abrasion, Assay Office charges, etc. The proposed agreement obligates the debtor institution at the request of the creditor institution actually to ship the gold which has been earmarked, and in order to fulfil this obligation we should be put in a position to secure the gold and ship it on as favorable a basis as the Bank of England or the Bank of France could perform a like service for us, and without the considerable loss which we would incur if we ourselves had to stand the cost of securing United States mint bars.It seems to us that there would be a compensating advantage to the government in having it made as easy as practicable for us to earmark gold bars instead of United States gold coin for our foreign correspondents since the exporting of such coin would require, potentially at least, the minting of additional gold coin and would entail expense upon the government. In this connection there might also be considered the expense which the Federal Reserve System is saving the government by issuing its notes in substitution for gold certificates, not for its own profit but solely in the public interest. This saving will be greatly increased when the Act has been amended so as to facilitate the process.Mr. Bovee, superintendent of the Assay Office has recently asked us whether we could help him for a few months by storing up to perhaps $300,000,000. to $400,000,000. of gold bars in our vault and we have told him that while it would not be possible for us to store any such amount as he indicates our attitude would be to cooperate with him and assist him as far as may be practicable without interfering with our own facilities and those of our member banks. We are now studying what new vault compartments we are likely to need during the next year or two, and have told Mr. Bovee that when this survey is finished we would reply to him definitely. We have stated to him, however, that if the remission of the 50 cents per $1,000. charge could be made we should be inclined to acquire promptly and carry on hand a substantial amount of gold bars in anticipation of their being needed under our foreign agreements, which would give him some measure of relief even should we not be able able to store bars for his account.It is our desire, therefore, in view of the important effect which we feel the agreements now under negotiation with the Bank of England and the Bank of France will have in steadying credit conditions in the United States with consequent advantage to our commercial, industrial and agricultural interests, and in order that we may be able to operate with the greatest freedom under these agreements, if concluded,

(a)
That we should be able, without paying the charge of 50 cents per $1,000., to procure from the Assay Office from time to time such reasonable amount of United States mint gold bars as we may desire normally to keep on hand and as we may need for transactions with our foreign correspondents. Of course, we should not expect to make a practice of re-selling such bars to our member banks unless and until our relation to the Treasury Department and the Assay Office required or permitted us to do so.
(b)That on any uUnited States mint gold bars which we may have procured from the Assay Office and later wish to return for conversion into gold certificates, the Assay Office should waive the charge for remelting of $1.00 per 1,000 ounces upon our written guarantee that the bars returned were the identical ones received from it and had not been out of our vaults. We understand that this has already been done in some cases for individuals or institutions, and the precedent therefore seems established for the extention of the privilege, under appropriate safeguards, to this bank.

With respect to (2), already referred to briegfly in my letter to Governor Harding, I will ask the privilege of deferring writing you at length until some time next week as our study of the details is not quite completed, but I am writing you to-day about the other changes desired as Mr. Bovee tells us he expects to be in Washington early next week and you might wish to discuss them with him.
We trust that the waiving of these two charges in our case, to the extent and under the conditions above described, may receive your favorable consideration, and it would be a great satisfaction if they could be adjusted soon as we should like very much to be able to eliminate mention of them from our proposal to the Bank of France which should go forward some time next week.
Respectfully yours,


Chairman.

Original Format

Letter

To

McAdoo, W. G. (William Gibbs), 1863-1941

Files

http://resources.presidentwilson.org/wp-content/uploads/2017/03/D08121.pdf

Tags

Citation

Pierre Jay, “Pierre Jay to William G. McAdoo,” 1917 March 3, WWP18544, Benjamin Strong Jr. Papers, Woodrow Wilson Presidential Library & Museum, Staunton, Virginia.