The Ambassador in Brazil (Caffery) to the Secretary of State
[Received October 6—12:05 p.m.]
A–390. Reference Department’s airgram No. A–262, 5 p.m., September 21, 1942. The instructions of the Bank of Brazil of May 20, 1942, attached as an enclosure to the Embassy’s despatch No. 7373 of May 20, 1942,68 designated the Bank of Brazil as the exclusive forwarder to the United States of American dollar currency destined for exchange into milreis or for deposit to a credit in the United States, and at the same time suspended the authorization for any other banking institution or exchange houses to deal in American dollar currency. However, this instruction by the Bank of Brazil did not prohibit the holding of American dollar currency by any person or institution other than the Bank of Brazil. The regulations adopted by the Bank of Brazil, in accordance with the Embassy’s recommendations, to all practical purposes limited the market for American dollar currency to the Bank of Brazil, and as has been reported to the Department, the exchange rate at which American dollar currency was liquidated surreptitiously declined considerably, making it decidedly unprofitable for any legitimate holder of American dollar currency to liquidate this currency other than through the procedure outlined by the Bank of Brazil.[Page 809]
Reference is made to the Embassy’s despatch No. 8368 of September 9, 1942,69 titled “Foreign Funds Control—Control of Dollar Currency”, wherein the course of the measures adopted by the Bank of Brazil relative to American dollar currency is evaluated. Subsequent measures adopted by the Bank of Brazil for the handling of “new” deposits, as reported in the Embassy’s despatch No. 8294 of August 27, 194269 and contained in the circular letter No. 1165 of the Bank of Brazil of August 13, 1942,70 made provision for the forwarding of these deposits to the United States’ Treasury Department on a collection basis, with the exceptions mentioned therein, of all legitimate holders of American dollar currency. The measures adopted therein, in conjunction with Decree Laws No. 3911 and No. 4166, have effectively isolated American dollar currency with Axis connections. As has been reported to the Department substantial quantities of American dollar currency are still in the possession of Axis interests. As developments occur relative to this Axis control of American dollar currency, they shall be reported to the Department.