Foreign Relations of the United States: Diplomatic Papers, 1943, The Near East and Africa, Volume IV

891.51/554

Memorandum of Conversation, by the Assistant Chief of the Financial Division (Luthringer)

[Washington,] February 3, 1943.

Participants:	The Iranian Minister, Mohammed Shayesteh
	The Iranian Commercial Attaché, Hosein [Mohamed] Nemazee
	Treasury Department, Mr. Harry White
	Mr. E. M. Bernstein
	NE,74 Mr. Jernegan
	FD,75 Mr. Luthringer

I

The Iranian Minister having been so authorized by his Government had arranged through the Department to meet with Mr. White to discuss a financial agreement between the United States and Iran along the lines of the Anglo-Iranian Financial Agreement of May 26, 1942.⁷⁶

Mr. White opened the proceedings by saying that as he recalled when he had last spoken with the Iranian Minister and Mr. Saleh⁷⁷ there had been some discussion of the difficulties which Iran faced because of that country’s large sterling holdings. Mr. White then went on to ask just what the Iranian Government had in mind to discuss. The Iranian Minister then launched forth on a long discussion of the unsatisfactory consequences from the point of view of both the British and of Iran of an exchange rate as high as 132 rials to the pound. So far as could be told from his presentation, which was far from lucid, his thesis seemed to be that the existing exchange rate was the fundamental cause of the inflation taking place in Iran and was not only unsettling general economic conditions in that country but was also increasing the cost of operations to the British and to ourselves. The Iranian Minister hastened to add, however, that he was not authorized by his Government to discuss the exchange rate. Mr. Nemazee then interjected some remarks to the effect that, of course, the sterling and dollar rates against the rial would presumably have to be kept in line and reiterated the Minister’s statement that they were not authorized to discuss the exchange rate.

As we did not seem to be getting anywhere Mr. White asked Mr. Luthringer what the State Department’s understanding was. Mr. Luthringer replied that it was his understanding that there was a prospect that this Government or its agencies would soon be in need of acquiring substantial amounts of rials. Mr. Luthringer mentioned that the British needs for rials have been very large and have caused a material expansion in the Iranian monetary circulation. Iranian monetary laws require that the reserve against notes should be in the form of gold or currencies of a guaranteed gold value. The Iranian Minister of Finance had discussed this situation with Mr. Dreyfus⁷⁸ at Tehran and had suggested that we explore possibilities of reaching a financial agreement with Iran similar to the Anglo-Iranian Financial Agreement which would assure us of getting the rials we needed and at the same time might provide the Iranian Government with a medium suitable for reserves within the provisions of the Iranian legislation.

The Iranian Minister agreed with this statement but both he and his colleague said that there were some things about the British agreement which they did not like and they would not want an agreement exactly like their agreement with the British. They agreed that the objective of the two agreements would be the same, namely to assure that we would be able to get the rials which we needed just as the Anglo-Iranian Agreement assured the British that they could obtain the rials which they needed.

There was then some consideration of the Anglo-Iranian Agreement particularly those sections restricting the British liability to convert sterling into dollars to pay for Iranian purchases from the United States and the provisions relating to the conversion of sterling into gold.

The Iranian Minister asked whether Treasury had already drafted anything. Mr. White replied that they had not but would be glad to undertake to formulate a proposal to discuss with the present group in the very near future. The Iranian Minister said that the Treasury should feel free to call on Mr. Nemazee at any time for specific information. (It may be noted that Mr. Nemazee not only speaks English fluently but obviously has a keen understanding of the technical financial matters.) It was agreed that Mr. White would inform the Iranian Minister when we were ready to pursue the discussions further.

II

After the Iranian Minister and his colleague departed Mr. White requested Mr. Jernegan and Mr. Luthringer to discuss the matter a little further with him. Mr. White said that he thought it would be very easy to draft an agreement which should be satisfactory to the Iranian Government and asked whether he should proceed to do so us expeditiously as possible. Mr. Jernegan and Mr. Luthringer said they thought it would be advisable to proceed promptly. Mr. White then went on to say that he would be ashamed to sign an agreement which gave the Iranians as little as the British Financial Agreement gave them and that what would cost us very little would mean a great deal to the Iranians. He pointed out that the ordinary facilities which we extended to friendly countries to earmark gold would give the Iranians far more favorable treatment than the British “concessions” in their financial agreement with Iran.

There was then general discussion of keeping the British informed of what we proposed to do. Mr. White was very anxious to avoid any appearance of our asking the British for permission to make any sort of agreement that we wanted. Mr. Luthringer asked whether he wished the Department to inform the British of our intentions and the probable nature of the agreement or whether Treasury wished to do so. Mr. White said that ordinarily he thought the State Department would be the best agency for informing the British but that he thought that it might be handled more easily if it were handled as a Treasury-matter. Mr. Luthringer said that he thought that a very natural way to handle it would be for Mr. White to take the matter up orally with Sir Frederick Phillips.⁷⁹ Mr. White said that as soon as Treasury had formulated the main provisions of the proposed agreement he would inform Sir Frederick before communicating with the Iranian Minister and if Sir Frederick requested it would hold off for several days before meeting again with the Iranian Minister until Sir Frederick should have had an opportunity to communicate with London. Mr. White also said that he would communicate to Sir Frederick an actual draft of the agreement when the negotiations should have proceeded to that point. It was agreed that we could hardly be precluded from giving the Iranian Government as favorable treatment as we did other friendly governments merely because such treatment was more favorable than the British were either prepared to give or in a position to give.

74. Division of Near Eastern Affairs.
75. Financial Division.
76. For previous correspondence regarding this subject, see Foreign Relations, 1942, vol. iv, pp. 300 ff.
77. Allah Yar Saleh, Head of the Iranian Economic Mission to the United States and Minister of Finance.
78. Louis G. Dreyfus, Jr., the American Minister in Iran.
79. British Treasury representative in Washington.