741.9111/63
The British Embassy to the Department of State
Aide-Mémoire
The military responsibilities which His Majesty’s Government have undertaken in Iran are costing them some £1,000,000 a month in local currency. The Iranian Government are refusing to provide this local currency against sterling, and are demanding either more sterling area goods or else gold or silver. His Majesty’s Government cannot, however, increase imports of sterling area goods on account of shipping difficulties and the need for using the available port capacity largely for Russian supplies.
On the other hand to pay in gold involves the risk that this would lead to similar demands from other parts of the Middle East, involving too heavy a burden on limited reserves.
Would the State Department be willing to cause strong representations to be made in Tehran for the supply to the British authorities of local currency needed for our common purposes against sterling and indicating that failing this lend-lease arrangements must be held in abeyance?
Another method of pressure suggested by His Majesty’s Minister in Iran would be to threaten to freeze Iranian balances. This could only be done with United States cooperation, since without such cooperation such a measure would merely increase the Iranian reluctance to acquire sterling.
Alternatively would the United States endeavour to obtain local currency for His Majesty’s Government against dollars?
The matter is one of some urgency since His Majesty’s Government will have no reserves of local currency left to draw upon before a month has elapsed, and they are most reluctant to take such steps as to threaten to withhold supplies. United States cooperation would also be invaluable in helping His Majesty’s Government to obtain surplus war material from the Iranian Government, who are refusing on political and financial grounds to sell any more.
His Majesty’s Government suggest that in any case, since Iran has foreign currency in excess of her import possibilities, any lend-lease supplies furnished should be in return for the equivalent in local currency.