The Ambassador in Brazil ( Gibson ) to the Secretary of State

No. 424

Sir: I have the honor to refer to my telegram No. 212 of September 11, 11 a.m.,60 in which I transmitted a resume of the new regulations concerning foreign exchange operations in this country. I am enclosing a translation of these regulations as issued by the Bank of Brazil, effective September 10, 1934.60

It is of interest to note that this matter was presented before the Federal Foreign Trade Council at a meeting held on September 10, presided over by the President of Brazil. The draft of the regulations was presented by Dr. Souza Dantas, Exchange Director of the Bank of Brazil and had the approval of the Minister of Finance.

It places all products exported, with the exception of coffee, on the free list as far as the buying and selling of foreign exchange is concerned. With respect to coffee, at present world prices, approximately 83% of the value of export bills is retained by the Bank of Brazil and the exporter is allowed freely to negotiate the balance in the open market.

With respect to imports the Bank of Brazil will furnish 60% of the exchange required at the official rate and the importer is obliged to procure cover for the other 40% in the open market.

As pointed out in previous despatches, this move is in line with the Government’s general policy of gradually breaking away from exchange control with the idea of eventually allowing complete freedom of buying and selling of foreign exchange.

The immediate reaction following the publication of the regulations in question was the strengthening of the milreis to a very substantial degree in the free market. On September 10, for example, the dollar was quoted at 14$800 whereas on September 12, it was difficult to find buyers at 13$800 to the dollar. It is believed that this sharp reaction is of a temporary nature, and it is thought that the dollar will react just as soon as importers are obliged to seek in the open market the 40% which they formerly received from the Bank of Brazil.

It would appear that the present regulations should greatly favor the increased exportation of Brazilian products. However, at the same time it will undoubtedly cause an increase in the cost of imported products and also it is likely to cause a general increase in the cost of living.

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I wish to call the Department’s attention again to the fact that the President of Brazil presided over the meeting of the Federal Foreign Trade Council which sanctioned the regulations under review. In view of the fact that he has recently shown great interest in all matters pertaining to foreign trade, it is believed that he will take an active part in negotiating the commercial agreement between the United States and Brazil.61

Respectfully yours,

Hugh Gibson
  1. Not printed.
  2. Not printed.
  3. For correspondence regarding the negotiation of the commercial agreement, see pp. 542 ff.