The Secretary of State to the Ambassador in Chile ( Bowers )
884. Your 1266, August 7, 6 p.m. It is unfortunate that the Central Bank is not prepared to prohibit the import and export of dollar currency or to prohibit the holdings of and dealings in dollar currency by private persons in Chile. Since this problem appears to have arisen because of apparent lack of authority by the Central Bank, you are requested to bring this to the attention of the Finance Minister and to endeavor to persuade him to take the necessary steps toward the promulgation of appropriate legislation for the purpose of carrying out a program of currency control as outlined in the Department’s circular telegram of June 19, 1942, 11 p.m.89
You should point out to the Finance Minister that in order to make controls over dollar currency effective it is necessary to prohibit the import and export of dollar currency from Chile except direct currency movements between the Central Bank and the United States and except for small amounts for travelers between the United States and Chile. Once this step has been taken it will be necessary to prohibit both the holding of and dealings in dollar currency by private persons in Chile in order to minimize the possibility of a black market.
With respect to the program outlined in your telegram under reference there would appear to be no objection thereto although the program falls far short of achieving effective control over the movement of dollar currency. It is assumed that once this program has been put into effect the Central Bank will not cash any more dollar currency (except small amounts for travelers) but will accept such dollars on a collection basis only and that the dollars will be shipped to the United States and no action will be taken with respect thereto until an appropriate decision has been made by the Treasury Department. In this latter connection it is suggested that with respect to such currency which is not released by Treasury there is no need for the depositor to be given any credit at all since the Central Bank is merely a collecting agent and that, in any event, the Central Bank [Page 131] should not make any commitment with respect to its release after the war. For your information the Central Bank might find such a commitment embarrassing if the Treasury Department should in the future decide to take steps more drastic than blocking with respect to tainted currency.
In notifying the Secretary of the Central Bank of your attitude toward the proposed plan you should make it clear that there will be no guarantee whatsoever that the Treasury Department will release any of the currency forwarded to the United States from Chile.