891.00/1923: Telegram

The Minister in Iran ( Dreyfus ) to the Secretary of State

333. Reference my 327, October 17, 10 p.m. After protracted discussions between Prime Minister, Soviet Ambassador, British Minister and myself the Prime Minister has been persuaded to present and defend the currency bill in the Majlis provided American and British Governments agreed to provide any cereal deficiency which may occur up to end of war or at least until next harvest. Prime Minister informs me he will go to Majlis today to seek legislative authority for immediate issue of 500 million rials of currency for purchase of wheat, of which he will then earmark 150 millions for Allied war use. This amount should last about a fortnight. If Allied assurance as to cereals is given he would then press for authority to issue remainder of 2 billion rials.

Because of urgency of currency question we have been seeking a formula which will solve this problem and at same time save the Qavam Government and quiet Iranian fears of starvation. A joint Anglo-American declaration that Iran’s cereal deficiency will be met if such deficiency is clearly established and if Iran takes certain steps to help herself has been suggested by the British Legation and the Prime Minister as a way out of present impasse. A draft declaration is now being worked on and will be cabled to Department as soon as completed. Such a joint declaration would have decided advantage over unilateral declaration recommended in my No. 327 in that it would also find the British and would prevent British from obtaining impression that we are backing the Iranians against their interests. British Legation is recommending to London approval of this declaration.

British Legation is dissatisfied at these recurring financial crises and favors solution along following lines: (1) Legal limit on currency issue to be removed; (2) setting up of a currency board consisting of an Iranian, Russian, American and British members; (3) relimitation on issue of further currency except by sales of foreign exchange in order to prevent continuance of Government’s present policy of avoiding taxation by expediency of long term borrowing. It is doubtful if Iranians would voluntarily approve setting up of currency board suggested. It might be advisable to await Millspaugh’s53 arrival before making any commitment in this regard.

An important factor in Iran’s wheat problem is Azerbaijan surplus of about 35,000 tons. While Soviet officials have expressed willingness to assist in transport of this wheat to Tehran little actual cooperation [Page 161] has been given. I have impressed upon [them] the fact every ton of wheat shipped into Iran means one less ton of vital raw materials for Russia and I hope this argument will have some effect. There are strong indications however that the Soviet military intends buying up this wheat for their own use. Department may wish to call to attention of Soviet Government the harmful effects to Iranian economy of their purchases of large quantities of wheat, cattle and other goods in Iran.

  1. Arthur C. Millspaugh, appointed head of American Financial Mission to Iran.