832.5151/955: Telegram
The Ambassador in Brazil (Caffery) to the Secretary of State
[Received 2:45 p.m.]
2. Department’s 1, January 6, 6 [7] p.m. Full information concerning exchange situation was reported in my air mail despatch No. 235, December 30.5 Pan-American Airways informs me that the [Page 333] aeroplane carrying this despatch has been delayed 3 days through forced landing en route and will only arrive at Miami this afternoon. (Also in despatches No. 229 of December 29, No. 233 of December 30 and No. 244 of January 4)6
Sale of foreign exchange for remittance abroad has been entirely suspended since promulgation of decree law reported in my 194, December 24, midnight.
- (1)
- Reason for suspension is oversold position of Bank of Brazil (my 1, January 4, 3 p.m.) which condition arose through (a) heavy commitments of the Bank in future exchange contracts when the milreis rate was around 15 to the dollar (my despatch 64, October 6, 19377) and over-liberal policy in supplying exchange prior to October first; (b) reduction in supply of exchange for governmental purposes due to the abolition of 35% obligatory exchange quota; (c) the decrease in Brazil’s favorable trade balance due to increasing imports and diminution in value of exports caused by sharp fall in coffee prices; (d) unusually heavy transfer of funds abroad due to the apprehension over political situation on account of events of November 10th as well as uncertainties of economic outlook. The Bank’s position was further aggravated by losses incurred in not covering sales of important future foreign exchange before the recent depreciation of the milreis.
- (2)
- When exchange operations were suspended on December 23rd the Bank of Brazil was oversold approximately $10,000,000. However, since that time the Bank’s position has been improved through the acquisition of export bills and is improving daily. Confidence is expressed that if the present rate of improvement continues the Bank will be able to allocate foreign exchange within a month.
- (3)
- It is still uncertain whether the Bank of Brazil intends to establish a fixed rate for the milreis in terms of the dollar (an indication of the Bank’s intention is given in the Bank of Brazil’s instructions to commercial banks enclosed in my No. 229, December 29, 1937). The commercial banks are continuing to accept milreis deposits against liquidation of dollar drafts when exchange is available. The rate is that of 17.5 plus the 3% tax established by the Bank of Brazil.
Please inform Department of Commerce.