Purchase Operation
Purchase Operation

Purchase Operation.

France has been accumulating gold for months in anticipation of this loan, but is still not over-strong as regards gold holdings. ...

New York Commercial, January 12, 09, 14:5


[Dispatch to the Associated Press]

Paris, January 12 - The shipments of gold from New York to Paris are destined for the Bank of France, which has arranged for the engagements through various Paris banking houses. The movement is a natural one resulting from a favorable rate of exchange. The gold is probably for assisting in the flotation of the new Russian loan, which is announced for January 21...

The Russian Finance Ministry closed arrangements for this loan with a syndicate including the principal houses of Paris, and the bulk of the issue will be floated there. ...

New York Post, January 13, 09, 1:6; Evening Telegram, January 13, 1909, 15:3; and others.

The currency of the day was gold. International transactions took place in gold. The Russian Government would require that it receive the corresponding amount of the loan - any surplus above the 1904 loan parlay, approximately "$90,000,000 in new money" - in gold. No doubt a part of this "new money" credit could be maintained within Russia's accounts within the various French banking houses, but the majority of the balance would have to be shipped to Russia. As the French banks' depositors subscribed to the Russian loan with their French francs, those francs would have to be converted into gold. The French banks purchased gold for this purpose both on the London (primarily gold from South Africa) and New York markets.

Gold, however, was not maintained within the vaults of the individual French banks, but rather their reserves were maintained in the vaults of the Bank of France.

We find that the Bank of France was virtually the sole depository of the specie reserve of all the French banks; specie imported into France went either into the vaults of the Bank of France or into hand to hand circulation. ... Banks other than the Bank of France kept in their vaults only enough cash for daily needs, relying for additional needs upon their ability to rediscount commercial paper at the Bank of France. Even the savings banks thruout [sic] France kept in their vaults only a minimum of till money. The savings received were deposited, in compliance with the national law, with the Caisse des Dépôts et Consignations, a government institution, which likewise kept only a very small amount of cash on hand. Cash in excess of daily needs was invested in Treasury bonds and similar short-time investments, or else deposited in either the Bank of France or the French Treasury. The latter, in turn, kept its cash in the Bank of France.

The Bank of France was thus virtually the sole depository of all cash in France except such funds as were needed by the banks for their current demands. [Emphasis suppplied.] What this amount was it is impossible to tell accurately, since none of the bank statements distinguish between cash in their own vaults and sums on deposit in the Bank of France; the reserves all appear under one heading 'cash on hand and in the Bank of France.' ... Altho [sic] the Bank of France paid no interest on such deposits, commercial banks found it expedient to keep sizeable accounts there for convenience in transfers...1

The January 12th Associated Press release (above) - dateline Paris -, which was picked up by several New York newspapers, is therefore technically correct; gold would have been purchased by one or more of the underwriting French banks and consigned to the Bank of France where it would be segregated and kept in the accounts of the respective underwriting bank(s). However, if title passed to the Russian Government on January 22nd, 1909, and if shipment was not made prior to that date, then Russia could dictate the gold's destination. See: Third Theory Shipment. After the operation of the loan, Russia could, with politically controlled discretion, transfer her gold as needed - from wherever it was located - to other accounts and/or other countries.

The seeds of World War I had been planted and alliances formed. If gold was lost aboard the REPUBLIC, its owner had both a political and financial incentive not to acknowledge the loss of gold, and to request that any other knowledgeable party do the same.


1Harry D. White, The French International Accounts 1880-1913, (Harvard University Press, 1933), pg 172.