811.20 Defense (M) Spain/687d: Telegram

The Secretary of State to the Ambassador in Spain ( Hayes )

850. USCCO 1373. Department’s 1924 of March 27 (USCCO 3064) to London.26 Subcommittee of IPOC27 on finance has considered London’s 1524, 1963 and 207928 on financial position in Spain. Representatives of the British Embassy attended and the following action was agreed:

1.
Immediate steps should be taken by USCC in Madrid to secure as large balances of internal pesetas as quickly as possible by the several means at your disposal. Whether or not black market operations, which presumably would figure as one method, should be cleared informally by the Instituto is left to your decision. It is assumed that the British also will proceed promptly in their efforts to secure internal funds.
2.
Careful consideration has been given to London’s 2079, and it is now requested that you seek from the Instituto the purchase of four million dollars worth of pesetas against dollars.
3.
It is believed here that in the course of the negotiations on the supply purchase agreement every effort should be made to secure from the Spaniards effective assurances regarding the prompt issuance of export licenses for our purchases.

The conviction existing here that under no circumstances should we risk curtailment of our preclusive program because of a peseta shortage led to the above conclusions. It was further believed that our negotiating position would be stronger if we were in possession of substantial peseta working balances, and the decision was taken in full recognition of the fact that the action to be taken under 2 above may impress on the Spaniards the rate at which their dollar balances are increasing and in turn invite their attention to the difficulty of the utilization of such balances for the purchase of goods here. There is also full recognition that this action is a safeguard for the maintenance of the program and does not apply a basic correction to the problem. Increased cotton purchases in this country, however, should tend to correct the problem of redundant Spanish dollar deposits.

Every consideration will be given by IPOC to any suggestion you may make for constructive action designed to balance the trade position. We are studying your suggestion to increase supplies to Spain. As you are aware, the supply position in this respect must be controlling.

It was pointed out in the penultimate paragraph of London’s 1963 that the Instituto could not hold large balances of foreign currency because it lacks sufficient capital for this purpose. In your opinion do means exist whereby the Bank of Spain could be persuaded to acquire certain dollar balances from the Instituto and in accordance with existing U. S. Treasury regulations convert them into earmarked gold in this country. Your views in detail, with particular attention to the difficulties which might bar such action, would be appreciated on this point. According to information here, the Bank of Spain from time to time has acquired gold directly or indirectly from Germany, but its gold holdings are still believed to be relatively small. Repeated to London.

Hull
  1. Not printed.
  2. Iberian Peninsular Operating Committee.
  3. Telegrams dated March 2, March 20, and March 24, respectively; none printed.