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AGREEMENT BETWEEN THE UNITED STATES AND THE GOVERNMENT OF INDIA, AND EXCHANGE OF NOTES BETWEEN THE UNITED STATES AND THE UNITED KINGDOM, CONCERNING THE LENDLEASE OF SILVER

845.515/545 Memorandum of Telephone Conversation, by the Adviser on Political

Relations (Murray)

[WASHINGTON,] January 8, 1944. Mr. Harry White 38 of the Treasury Department called me by telephone this morning to inform me of the latest developments in the question of lend-leasing 100,000,000 ounces of silver for use in combating inflation in India.

Mr. White stated that during the discussion of this matter with the “silver senators”, when the question was asked whether this silver should be lend-leased to the British Government or to the Government of India, several of the senators had expressed a preference for a direct lend-lease transaction with the Government of India. Mr. White further stated that Secretary Morgenthau 39 favored dealing direct with the Government of India in this matter.

Recalling that this matter had been discussed earlier with certain officials of this Department and that a preference had then been expressed for dealing with the British Government in this matter, Mr. White inquired what our views were at the present time. I informed Mr. White that in the discussions which had taken place here we had been strongly of the opinion that the silver should be lendleased direct to the British Government for any use they might see fit to put it to in India and that the British Government should assume the responsibility for the eventual return of the silver ounce by ounce.

In this connection I reminded Mr. White that the Government of India is not a "government” in our ordinary understanding of the word but is merely a term for the British Government exercising its rule in India ; that in our view no possible political advantage would be gained by dealing with the Government of India in this matter, whereas certain future risks and disadvantages might result.

Mr. White then stated that the Treasury had not considered that the risks were any greater in one case than in the other and that he could not conceive of any government repudiating an agreement to return silver which had been furnished it under a Lend-Lease arrangement. I told Mr. White that I was unable to follow his reasoning that there would be no greater risk in dealing with the Government

Harry Dexter White, Assistant Secretary of the Treasury in charge of Monetary Research and Foreign Funds Control.

3* Henry Morgenthau, Jr., Secretary of the Treasury.

38

of India than there would be in dealing with the Government of Britain in this matter for the reason that no one could foretell what the set-up in India would be after this war; that a violently nationalistic government made up of Indians themselves might gain power and that it would, in our view, be rash to assume that such a native government, with possibly strong color prejudice against the white peoples of the West, would voluntarily assume obligations undertaken on their behalf by the British under the name of "Government of India" at this time. It seemed to me, therefore, advisable to place the responsibility in this matter squarely upon the British Government which, in turn, is in a position, if it wishes, to shift the burden of obligation to the Indians. If it does not wish to do so or if it feels that it cannot do so, that is of course of an intra-Empire matter, and irrespective of any such action which might be taken by Great Britain we would be in a position to look to it for the fulfillment of the transaction.

Mr. White inquired of me whether we had discussed this matter with Lend-Lease people since there was a feeling in Treasury that it was a matter for agreement between ourselves and Lend-Lease. I told Mr. White I did not know what there was precisely to discuss; that, however, in recent discussions regarding the method of obtaining under reverse Lend-Lease from India certain vitally needed raw materials we had strongly supported the view that Great Britain should assume the responsibility for coming to a satisfactory financial arrangement with the Government of India in order that the desired raw materials might be forthcoming. It seemed only natural to suppose that our viewpoint might be the same in the present matter of silver.

Mr. White then said that he agreed that there would probably be no useful purpose in our conferring with the Lend-Lease authorities about this matter and that he would take it up again with Mr. Morgenthau who might view the matter differently in the light of the factors in the situation of which he had not been aware when he had come to the conclusion that it might be preferable to deal direct with the Government of India in the lend-leasing of this silver.

WALLACE MURRAY

845.515/539a The Under Secretary of State (Stettinius) to the British Ambassador

(Halifax)

WASHINGTON, January 19, 1944. MY DEAR MR. AMBASSADOR: Following your letter to me of November 9, 1943 40 relative to the proposed lend-lease silver arrangement for India, officials of the Department have had many conversations on the question with our Treasury. I am now informed and am happy to tell you that the Treasury has made a favorable recommendation on the proposal to the Foreign Economic Administration. I believe, therefore, that only certain details which can probably be easily worked out are all that remain before the plan can be put into effect. With best wishes, Sincerely yours,

40 Foreign Relations, 1943, vol. IV, p. 280.

554-184-65 -17

E. R. STETTINIUS, JR.

845.515/536

The British Ambassador (Halifax) to the Under Secretary of State

(Stettinius)

WASHINGTON, January 22, 1944. MY DEAR ED: I have received your letter of January 19th in which you inform me that the Treasury has recommended favourably the proposal to make a hundred million ounces of silver available to the Government of India, and I note that it is your belief that only certain details remain to be worked out.

I have just received a telegram from Mr. Amery,41 the Secretary of State for India saying how grateful he is that this valuable support to the Indian economy is forthcoming, and I want to thank you very much for your cooperation in arranging this matter. Yours sincerely,

HALIFAX

845.515/545 Memorandum of Conversation, by Mr. Calvin H. Oakes of the

Division of Middle Eastern Affairs

[WASHINGTON,] January 26, 1944. Participants: Mr. K. C. Mahindra, Chief of the Indian Supply

Mission
Mr. Alling 42

Mr. Oakes Mr. Mahindra called at his request in connection with the proposed lend-lease of 100 million ounces of silver for use by the Government of India. He commenced his conversation by stating that he had been astonished and distressed to find that arrangements now con

41 Leopold s. Amery.

Paul H. Alling, Deputy Director of the Office of Near Eastern and African Affairs.

43

templated would render Great Britain responsible for the return of the silver; that it was his understanding that when this question was discussed last August in connection with the supply of 20 million ounces for coinage purposes it was decided that the return of silver provided to India would be an obligation of the Government of India. Mr. Stettinius, according to Mr. Mahindra, had indicated at that time that this would be the case.

It was pointed out to Mr. Mahindra that it was our understanding that the transaction effecting the 20 million ounces of silver had been simply an ad hoc agreement, and that arrangements made with regard to that transaction did not affect the present one. Mr. Alling asked Mr. Mahindra why he thought that the Government of India should be held responsible for the return of the silver rather than Great Britain.

Mr. Mahindra replied that, first, India was one of the United Nations and was regarded as a separate entity among those nations; and that, secondly, to refrain from making India responsible would suggest that we were concerned lest the Government of India would not honor its debt. He was sure that we did not have any such feeling, but that if we did he must consider it as an insult to his country.

Before any very precise reply had to be given to that observation, Mr. Mahindra continued his remarks with reference to the firm financial position which his country enjoyed, its past financial history, and implied that of the two Governments the Government of India was more solvent than the United Kingdom.

Mr. Alling replied that we were well aware of India's large sterling balances and that we questioned the solvency of neither Government. Mr. Alling asked, however, whether the Government of India was entirely independent financially.

Mr. Mahindra insisted that it was, except for the fact that the rupee was pegged to the pound. He admitted that his Government did not control the dollar balances accruing to it, but maintained that this was because of American insistence that empire credits be considered as a whole. He added confidentially that his Government expected shortly to have an independent dollar balance for purchases in the United States.

Reverting to the reason for Mr. Mahindra's call, Mr. Oakes stated that failing convincing argument to the contrary it appeared to the Department that the Government of the United Kingdom was the Government which should be expected to see to the return of the silver, in as much as lend-lease of the silver was being effected through the lend-lease agreement with the British Government, and in as much as it was the British Ambassador who had made representations to the Department on the subject.

Mr. Mahindra replied that he was in disagreement, in that the transaction was not really one of lend-lease in that there was the promise to repay which did not exist in true lend-lease transactions; and, secondly, that it was the Government of India which had pressed for the loan of the silver. The British Ambassador had entered the picture only because it had been thought desirable to make representations on as high a plane as possible. The British Ambassador represented in the United States, moreover, not only the Government of the United Kingdom but the Government of India. In the earlier representations Mr. Mahindra had advanced the matter for the Government of India, assisted by Sir Cecil Kisch of that Government. Sir David Waley of the British Treasury had assisted in these representations only because a silver expert was needed in connection with the conversations on the subject with the United States Treasury.

Mr. Mahindra continued that if we felt that the Government of India was worthy of receiving a note from us asking for reciprocal aid, he could not understand why his Government should not expect us to deal directly with it in so far as the present transaction is concerned. The lend-lease agreement with Great Britain simply provided a convenient means of effecting the transaction. He intimated that if we did not wish to treat his Government as an entity, his Government might well be justified in declining to provide reciprocal aid under the arrangement now contemplated.

Mr. Alling asked whether Great Britain was not assisting India in making available to the United States the materials requested as reciprocal aid. Mr. Mahindra replied in the negative, stating that the Government of India alone was responsible for furnishing these materials and that the British entered into the picture only to the extent of having suggested in the first instance that we make the reguest of the Dominions and of India.

Mr. Alling observed that he had been under a somewhat different impression. He continued that frankly, with regard to the general picture, he could not see quite where the Government of India began and where the Government of Great Britain ended; that we had reason to believe that the Indian people viewed lend-lease with considerable suspicion; that we did not wish to do anything which would suggest to the people of India that we were attempting to entrench ourselves in India; and that hence it appeared best that the return of the silver be made an obligation of Great Britain rather than of India.

Mr. Mahindra replied that there was some suspicion on the part of the Indians and that he was compelled to remark that American protestations did not always coincide with American actions. However, he himself understood why certain recommendations advanced by us

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