The next Caribbean country to receive the "protection" of the United States was Nicaragua. Intervention in Nicaragua, initiated under President William H. Taft and Secretary of State Philander C. Knox in 1912, was a prominent example of the so-called dollar diplomacy usually associated with that administration. Dollar diplomacy had a dual character. On one side, it was the use of diplomacy to advance and protect American business abroad; on the other side, it was the use of dollars abroad to promote the needs of American diplomacy. In the first sense, it was practiced by many an administration before Taft and since. The employment of American dollars to advance the political and strategic aims of diplomacy was a less familiar technique.
There was a hint of it in the Platt Amendment. It was plainly seen in the refunding of the debt and the instituting of the receivership in the Dominican Republic under Theodore Roosevelt. Invoking, as Roosevelt had done, the Monroe Doctrine as their justification, Taft and Knox made a similar arrangement with Nicaragua and sought unsuccessfully to do the same with Honduras and Guatemala.
The setting up of the Nicaraguan customs receivership came at the conclusion of some years of turmoil in Central America, largely the work of the Nicaraguan dictator, José Santos Zelaya. Having lent support to the ousting of Zelaya, Taft and Knox were anxious to bring peace and order to Central America by applying in Nicaragua the same remedy that had some success in the Dominican Republic. They found a cooperative leader in Nicaragua in the person of Adolfo Díaz, who succeeded Zelaya as president in 1911. A businessman who despised militarism and craved order and good government, Díaz was willing to compromise his country's independence by granting to the United States broad powers of intervention. In 1912, when he was faced with insurrection, the United States, at his request, sent 2,000 U.S. marines to Nicaragua, suppressed the rebellion, deported its leaders, and left a 1egation guard of one hundred marines that—until 1925—"stabilized" the Nicaraguan government under Díaz and his successors.
Secretary Knox's attempt, with the aid of Díaz, to set up a customs receivership in Nicaragua by treaty was blocked in the U.S. Senate, but a receivership was established nevertheless by agreement between Nicaragua, certain American banks, and the State Department. A mixed claims commission reduced claims against Nicaragua from $13.75 million to a mere $1.75 million. Another mixed commission was given limited control over Nicaragua's spending policy. The policy of Taft and Knox was continued by their successors, President Woodrow Wilson and his first secretary of state, William Jennings Bryan. To meet Nicaragua's urgent need for funds and at the same time to provide for the future canal needs of the United States, the Bryan-Chamorro Treaty, signed 5 August 1914 and approved nearly two years later, provided for a payment of $3 million to Nicaragua in return for the grant of certain concessions to the United States. These included the perpetual and exclusive right to construct a canal through Nicaragua and the right for ninety-nine years to establish naval bases at either end of the route, in the Corn Islands in the Caribbean and on the Gulf of Fonseca on the Pacific.
The United States also succeeded, not by treaty but by informal agreement with Nicaragua and the bankers, in reducing and simplifying the Nicaraguan debt and in setting up a customs receivership that would see to it that a suitable portion of the national revenue was applied on the debt. Application of the Roosevelt Corollary, implemented by dollar diplomacy and the landing of a few marines, had made Nicaragua secure against any violation of the Monroe Doctrine.