825.516/136: Telegram

The Ambassador in Chile (Culbertson) to the Secretary of State

86. Department’s telegram No. 32, June 13, 2 p.m. My understanding is that decree affects only deposits in foreign currency in banks in Chile. It seems to me very improbable that official interpretation or regulations could extend the decree to cover deposits held in banks in foreign countries, even if it should later appear to be the intention of the Government to adopt such a policy. Foreign banks have practically no gold or other actual foreign currency in Chile. The amount in the local National City Bank is almost negligible. The actual cash behind foreign currency credits in Chile is in the local banks’ reserves in London and New York. If therefore an attempt is made to enforce the decree of the Government it will be necessary for the Government to force managers of banks in Chile to sign drafts or authorize cable transfers. However Chilean Government obviously has no way of forcing correspondent banks in foreign countries to pay these drafts. In retaliation Government could of course take over the peso reserves and capital of local banks.

For the sake of clarity it may be added that Government project contemplates payment of depositors in pesos at the rate of 16.50 to the dollar. This value however is fictitious since dollars are being sold outside the Central Bank at anywhere from 40 to 50 pesos to the dollar.

At a meeting of the bank managers with the superintendent of banks this afternoon modifications in the decree were discussed. Although efforts were made to modify policy Government still insists that deposits are property of State. Chilean banks are opposing any exceptions in favor of deposits owned by foreigners.

The figure given in my telegram for the Dupont subsidiary covers dollar and pound sterling deposits, that is credits on books of the Chilean branches of the National City Bank, the Anglo-South American and the Bank of London. Under the monetary law these and other similar deposits cannot be transferred out of Chile without permission.