632.6231/314: Telegram
The Ambassador in Brazil (Caffery) to the Secretary of State
[Received June 16—6:30 a.m.]
143. My 114, May 17, 5 p.m. The Director of Exchange informs me that the Bank of Brazil today decided to cross the German compensation mark with the dollar instead of the pound. The daily selling rate for the compensation mark henceforth will be determined by dividing the dollar selling rate by 2.9830; today’s selling rate calculated on this basis is 5 milreis 900 reis. The Bank is of the opinion that this action will enable it to reduce its over-bought position in compensation marks which now approximates 27 million marks.
The recent decline in the pound was accompanied by a corresponding drop in the compensation mark, and buyers of mark refrained from purchasing in the belief that the mark would drop further. Since the Bank is determined to reduce the present position in compensation mark it feels that this can best be accomplished by crossing the mark with the dollar, the buying and selling rates of which have been pegged since December 27. It is the intention of the Bank [Page 395] by this and other moves to curtail commerce between Brazil and Germany in compensation marks.
The Bank of Brazil’s new buying rate for compensation mark is now 200 reis under the selling rate as compared with 150 reis previously. This change was prompted by Germany’s recent heavy purchases of cocoa. The Bank’s representative in Bahia reports that Germans have contracted for 300,000 bags of cocoa at prices higher than offered by other foreign buyers, cocoa exports from Bahia to Germany in 1937 amounted to only 42,362 bags. The Germans, apparently determined to keep the Bank of Brazil in a heavily overbought position in compensation mark, turned to cocoa when the Bank recently required that further sales of cotton to Germany be made in free exchange (see my 134, June 2, 8 p.m.).
Please inform Department of Commerce and Treasury Department.