The Minister Resident in Iraq (Knabenshue) to the Secretary of State
[Received 8:40 p.m.]
122. British banks in Iraq have received instructions from their head offices in London to refuse all applications for dollar exchange. The British maintain that Iraqi dollar credits resulting from their exports to the United States are more than sufficient to meet their normal purchases in the United States, but that the Iraqis have permitted their dollar exchange to be utilized for their purchase from Japan. In these circumstances Britain will not permit its meager dollar credits to be utilized by Iraq. It is estimated that Iraqi dollar credits lack by 30% enough to meet their normal American requirements plus the equipment for their army now on order in the United States. The Legation’s banker informed me today that the local British banks endeavored to persuade Iraqi Government to institute exchange control in order to safeguard their foreign credits for legitimate needs such as American credits for American goods but no action was taken.
The effect of this situation will be a throttling of Iraqi purchases in America until steps are taken to control dollar credits for American purchases.