882.516/59
The Chargé in Liberia (Reber) to the Secretary of State
[Received December 10.]
Sir: I have the honor to refer to the Legation’s telegram No. 151 of October 29, 5 p.m.77 reporting that arrangements had been concluded for the establishment of a bank by the United States Trading Company, a subsidiary of the Firestone Plantations Company. In compliance with the President’s request that the good offices of the Fiscal Agents be used in. securing or establishing a bank at Monrovia to replace the Bank of British West Africa, which had announced that it would cease all operations in Liberia on October 31, 1930, a representative of the National City Bank of New York, Mr. Robert B. Gwynn, arrived in Monrovia in early October to make a survey and report on the banking situation here. Full details of his report, which was submitted by cable on October 20th and the negotiations leading up to the establishment of the new bank have not been cabled to the Department, as it was understood that information in regard thereto was being supplied by the National City Bank and the Firestone Company in the United States.
[Page 412]Prior to the conclusion of Mr. Gwynn’s report he informed the President that unless certain currency and legal reforms could be enacted it was doubtful whether any responsible American institution could be interested in establishing a branch in Monrovia; the most important of these suggested improvements are:
- 1.
- Establishment of U. S. currency as legal tender in substitution for the present West African silver money, which is unsatisfactory because it is unwieldy and expensive to handle, because it does not agree with the unit of currency locally recognized as it is based on the pound sterling, and because it is being gradually withdrawn from circulation.
- 2.
- Removal of restrictions on the movement of currency, the exportation of which has been prohibited by the Government.
- 3.
- Reform of banking laws and the establishment of a sound commercial code, the absence of which greatly hampers the development of legitimate trade and business through the failure of the courts to take proper corrective actions and through the constant petty annoyances suffered by foreign traders and merchants.
In these suggestions it is reported that the President concurred.
A summary of the general situation with regard to the establishment of a bank brought the conclusion
“that banking profits would be negligible for the first year of a new bank operating here now, but that the average profits would compare favorably over a five year period with the past eight-year average of the Bank of British West Africa Limited”,
based on the following observations:
It was also felt, however, that over a period of time the general economic prospects of the country offer no great hope for future development as long as present restrictions on trade (such as the policy of the “closed door” in the Hinterland and the exploitation of the natives) continue, as long as the natives have no incentive for increased production, and as long as present price levels now not sufficiently attractive to encourage further production remain unchanged. Moreover it was reported that the policy of Government obstruction, which was the basic reason for the withdrawal of the British Bank, and the absence of an improvement in governmental practices, “which must necessarily precede economic progress”, constitute a further bar to economic betterment and an increase in the purchasing power of the nation.
[Page 413]Partly on the basis of this report, which seemed to promise a small profit but no great opportunity for future expansion under present conditions, it is understood that the National City Bank declined to establish a branch in Liberia. It is believed that this report was not the sole determining factor in this decision of the National City Bank but merely confirmed its disinclination to take this step.
Negotiations were then inaugurated on behalf of the Firestone interests which felt the need for the establishment of an institution, which could satisfactorily handle Government moneys and provide for a means of transferring interest and amortization funds under the Loan Agreement as well as certain commercial facilities. Their action in this matter would also appear to have been influenced by the fear that an irresponsible Government organization or national bank might be established. These negotiations culminated in a depositary agreement, concluded between the Government of Liberia and the United States Trading Company, a subsidiary of the Firestone Plantations Company of Liberia, in accord with Article XVIII of the Loan Agreement of 1926.
It has been thought that in addition to providing adequate protection to Government revenues and to holders of bonds issued under the Loan Agreement by establishing an adequate means for transmission of interest and amortization payment, the agreement further insures a more satisfactory income and an augmented profit to the task in handling of government funds by an increase from one to one and a half percent, commission. No branches will be established to take the place of the former suboffice of the British Bank at Harper and its agents at Robertsport, Buchanan, River Cess, and Greenville, although arrangements have already been concluded with the Oost Africanishe Company, a Dutch Trading Company to receive and forward Government revenues from these ports of entry.
In consideration for the services offered by the United States Trading Company—Banking Department, and in the hope that its operations will be extended in the future the President has agreed that U. S. Currency will be created legal currency for the Republic of Liberia and that the depositary of Government funds shall have the right to import and export currency according to its needs. Bills embodying these changes will, it is understood, be submitted to the present session of the Legislature. The President in his annual message this year further stressed the necessity for securing the services of an expert on banking procedure to make a study of existing laws looking toward the preparation of a commercial code, adequate for modern business requirements.
Two experienced men from the National City Bank of New York have been loaned to the United States Trading Company for its banking department, and the bank as constituted opened its doors on [Page 414] November 7, 1930 for the receipt of Government deposits and certain commercial transactions.
The policy with regard to the acceptance of private accounts has not yet been determined, although I have been confidentially informed by the representative of the Firestone interests here that it is at present proposed to limit operations purely to Government, institutional and commercial accounts, as the Company feels that it has entered upon a limited banking business and does not desire to extend the functions of its bank beyond the minimum required, until assurances of the Government’s cooperation in the shape of the adoption of the reforms promised and their proper execution are forthcoming. In view of the present political situation and the impression that has heretofore prevailed that the bank will act as a successor to the British institution in all respects, it is felt that this policy of not accepting private accounts—without a definite announcement thereof—may unnecessarily create local ill-will and react against a profitable expansion of the bank’s activities at a later date should this be so desired, and without which it is felt that no bank will be able to make a profit from its operations. It is believed that an arrangement which provides for minimum balance or deposit requirements will insure adequate protection and eliminate nearly all unsatisfactory accounts. It would seem important that this policy be shortly determined before the currency act is definitely presented to the Legislature as recommended by the American interests, for unless eventual expansion is anticipated this arrangement can only be a temporary measure and it would seem unfortunate that such an act was sponsored by a financial group which later withdrew.
There is already manifest a certain amount of local opposition to the bank, which may be increased by the adoption of this limited policy, on the part of some factions who feel that its entry has prevented the establishment of a national bank or the introduction of other American banking interests, which were understood to have been promised by a group of negro capitalists in the United States.
Respectfully yours,
- Not printed.↩