Papers of the Interdepartmental Conference on Middle Eastern Affairs [‎22r] (43/290)

11
o
The alternative to this arrangement appears to be inevitably that the French in
t eir spheie should be entrusted as with the control, so with the liability to make up
any deficiency from their own funds.
A fuither question how far expenditure, on account of these occupied territories,
and particularly on account of relief of destitute non-British subjects, should be
recoverable from the Government, which may ultimately set up, also requires
consideration, but may perhaps be deferred for the present, although the Treasury
desires to emphasise the importance of avoiding committing Imperial funds to any but
the strictly necessary expenditure in a sphere which is likely to pass out of purely
British control.
APPENDIX II.
THE FINANCIAL SITUATION IN THE CAUCASUS.
I HE Treasury is aware that military authorities in the Caucasus have asked for
a Financial Mission, but it has been considered that it would be a mistake to send out
such a mission and to entangle this country in the internal currency affairs of this
district, unless it is the settled policy of His Majesty’s Government to remain in
occupation of the district for a lengthy period.
2. The difficulties arising from unlimited issues of forged rouble notes by the
Bolsheviks and of uncovered local paper money by the various local Governments are
such as can only be cured by a radical change in the currency arrangements of the
district. It would, for instance, be possible for each local Government to demonetise
Russian rouble notes of all types and to set up a local currency with an adequate
reserve of gold, sterling credit, or other suitable security. But this would involve
extensive financial assistance from this country to an extent which, in present
circumstances, would be quite out of the question, and probably also a great measure
of British control of currency arrangements, which the local Governments might not
be willing to accept.
3. Another alternative would be the issue of a currency on the lines of the new
rouble currency at Archangel convertible into sterling at a fixed rate and guaranteed
by a sterling reserve, formed by the purchase of roubles by British Government
Departments and traders for expenditure in the district.
But this system, though fairly successful in Northern Russia, would meet with
much greater difficulties in the Caucasus, owing to the smaller amount of military
expenditure, the longer distance from the United Kingdom, the greater dimensions
and complexity of the currency problem, the smaller volume of trade with this
country, and the undesirability of becoming entangled in the internal affairs of the
district.
4. The solution adopted by the military authorities, as the Treasury now learn for
the first time, is the manufacture of rouble notes. It is not quite clear whether these
are forged promises to pay by a non-existent Russian Government or worthless (because
unauthorised) promises to pay by His Majesty’s Government. In the former case we
are guilty of a particularly dangerous form of dishonesty (for which an individual is
liable to the heaviest penalties in all civilised countries; ; in the latter case the Treasury
can clearly not be expected to assume responsibility for a note issue about which it has
never been consulted.
It is considered that the manufacture of these notes should be stopped at once.
The Treasury consider that the right policy is to avoid all interference with local
currency arrangements and to allow' the relative value of sterling, rouble notes of
various kinds, and local currencies to establish itself by the natural law of supply and
demand. It is not expected that there will be any insuperable difficulty in supplying
the currency needed for the legitimate requirements of the military, which are
understood to be about 3,000,000 roubles a month. The Treasury already possess
11,000,000 rouble notes (bought in Scandinavia) which they have offered the War
Office for shipment to Batoum. They have also asked the Air Board to arrange with
General Denikin to pay 10,000,000 roubles to Batoum for certain air equipment
bought by him, and they would suggest that a similar arrangement might be
made by the War Office. In addition, enquiries are being made as to the possibility
of purchasing roubles for sterling from the Russian Asiatic Bank at Batoum.