The Secretary of State to the Minister in Nicaragua (Lane)

No. 282

Sir: With reference to your despatch No. 870 of June 11, 1935,11 and to your telegram No. 50 of June 18, 1935 (noon), concerning the policies of the Nicaraguan Exchange Control Commission, you are authorized to point out informally to the President and to the Foreign Minister that this Government is opposed to the use of the bilateral principle in the allocation of foreign exchange by official exchange control commissions. Employment of this principle is not only considered discriminatory to the interests of American commerce but, as suggested in the memorandum enclosed with the Department’s instruction No. 270 of June 11, 1935, also is productive of other serious inequities. By tending to restrict world trade to equilibrating bilateral channels, the bilateral principle of allocating foreign exchange contributes to a movement which, if carried to its logical conclusion, would result in the elimination of triangular and multiangular trade. Practices of this character, which have had widespread application since 1931, have already exerted a markedly depressing effect on triangular trade. According to figures recently made public by the Joint Committee for the Study of Clearing Agreements, appointed by the League of Nations,12 the percentage of triangular trade to total trade of certain groups of countries representing almost three-quarters of world trade, from 1929 to 1933, was as follows:

1929 1931 1932 1933
(a) 16 European Countries 16.0 14.0 12.5 12.0
(b) 6 Other Countries 22.6 19.0 20.2 19.6
(a) plus (b) 18.3 15.5 14.8 14.2

Continuation of this tendency would leave world trade practically in a state of barter and would be particularly serious for countries such as Nicaragua, which must have active trade balances in order to meet external financial obligations.

This Government’s attitude on exchange control is clearly defined in one article of the Standard General Provisions13 for incorporation in trade agreements, copies of which have been supplied you. The general policy was also stated on page 2 of the press release of April 1, 1935, “Policy of the United States Concerning the Generalization of Tariff Concessions under Trade Agreements”.14 Copies of this release [Page 820] are enclosed. You may, if you see fit, provide the Foreign Minister with a copy of this release, in order that there may be no misunderstanding about this Government’s policy on the part of the Nicaraguan Government.

Very truly yours,

For the Secretary of State:
Francis B. Sayre
  1. Not printed.
  2. League of Nations, Enquiry into Clearing Agreements (II. Economic and Financial 1935.II.B.6.), p. 50.
  3. Vol. i, p. 541.
  4. Department of State, Press Releases, April 6, 1935, p. 212.