The Secretary of State to the Minister in Honduras (Erwin)
A–164. Reference your despatches nos. 2474, November 30, 1942; 2500, December 17, 1942; 2518, December 23, 1942; and 2524, December 24, 1942.36 The Department recognizes the seriousness of the situation which has occasioned your various communications regarding the effects of this Government’s program and the Honduran controls with respect to dollar currency and it is hoped that this airgram will assist in solving these difficulties.
In instituting controls over the movement of dollar currency, it was not the intention of this Government to interfere with the legitimate movement of dollar currency within the other American republics or the legitimate importation of dollar currency into the United States from the other American republics. Nevertheless, it was known that the Axis had seized large amounts of dollar currency, and that this currency was being disposed of in part through channels involving persons in the neutral countries of Europe and in the other American republics. It was believed that the best way to prevent the Axis from realizing on their looted currency was to adopt measures designed to drive the value of the dollar bill as low as possible in those markets where the dollar was not a part of the circulating medium. It was not intended to affect the exchange rate for telegraphic transfers, dollar drafts, travelers checks, et cetera, in those areas and events have proved that our currency controls did not affect such rate. Neither was it intended to affect the rate of exchange for dollar currency in those areas such as exist in Central America and in Cuba where dollar currency is a substantial part of the circulating [Page 378] medium and thus far we have had no indication from any of these areas that such rate has been affected.
Consistent with the foregoing aims, it was believed that two alternative types of currency controls should be suggested to the governments of the other American republics in order to supplement our own controls. For those areas where dollar currency was not a part of the circulating medium, it was believed that the controls should include: (1) a prohibition against the importation and exportation of dollar currency except direct currency movements between the United States and the area involved through the medium of authorized banking institutions and except for a reasonable exemption for travelers between the United States and that area; (2) the requirement that all dollar currency be deposited with authorized banking institutions for forwarding to the United States on a collection basis; and (3) the prohibition of all further holding of or dealing in dollar currency within the area involved. For those areas where the dollar was a substantial part of the circulating medium, it was recognized that items (2) and (3) would not be feasible and consequently only item (1) was suggested to those areas as the type of control desired.
It was first assumed that Honduras was an area where the dollar was a substantial part of the circulating medium and accordingly a telegram suggesting controls along the above-mentioned lines was drafted. Prior to the dispatching of this telegram, however, the Legation’s despatch no. 2067, May 23,37 was received. In this despatch it was stated that “The circulation of United States currency in Honduras is forbidden by law”. As a result of this statement, the Department concluded that Honduras was an area in which dollar currency was not a substantial part of the circulating medium and the statement “In view of these regulations, you should ask the government to which you are accredited to notify the Central Bank and other institutions not to purchase dollars but merely to accept them for transmittal on a collection basis” was accordingly included in instruction no. 784, June 25, 1942.37 This suggestion, of course, did not apply to the amounts of dollar currency brought in by travelers within the limits of the Honduran travelers’ exemption which it was contemplated would be purchased outright by the banks.
It now appears that the Department’s conclusion was incorrect and that, in point of fact, dollar currency does circulate to some extent in Honduras. Apparently the precise situation is that the selling of dollar currency by banking institutions in Honduras is prohibited without special authorization but the purchase is not. The purpose of the Honduran controls which were put into existence in 1934 appears to be to encourage the purchase of dollar currency by banking institutions [Page 379] so as to withdraw such currency from circulation (Article 21, Decree No. 141 of 1934, cited in despatch 2500).
In order to alleviate the existing situation, it is suggested that you inform the Honduran authorities that this Government believes that our controls would be sufficiently implemented if the Honduran Government merely prohibited the importation and exportation of dollar currency except for direct currency movements between Honduras and the United States through the medium of authorized banking institutions (which we assume would be the Banco Atlántida and the Banco de Honduras) and except for a $50 exemption for travelers between the United States and Honduras. Currency, in excess of the $50 exemption which persons entering or leaving Honduras attempt to import or export, should be taken from such persons and forwarded to the United States on a collection basis for the account of the persons involved. The effective enforcement of such a provision would make it unnecessary from our point of view to restrict the circulation of dollar currency within Honduras. In this latter connection it might be advisable, however, for arrangements to be made so that deposits of bills of large denomination such as $500 or over (and possibly $100 or over if you believe this would not have adverse repercussions) or deposits of large sums would be accepted for forwarding to the United States on a collection basis only for the account of the individual depositor. It is suggested that such arrangements might be more appropriately made informally with the banks rather than through a formal decree or regulation of the Honduran Government.
Upon the basis of the above outlined controls the Treasury will automatically release for free use in the United States all dollar currency forwarded by the Banco Atlántida or the Banco de Honduras for its own account. Such currency should be forwarded by these banks in packages clearly marked “securities” and addressed to the Federal Reserve Bank of New York. Treasury will make the necessary arrangements with the customs authorities to permit such packages to proceed to their destination without delay. Should such packages be brought to the United States by individuals, arrangements should be made so that such individuals will turn the packages over to the customs authorities for forwarding to the Federal Reserve Bank and, upon being notified by the Legation sufficiently in advance, the Department will make arrangements through the Treasury so that such individuals will have no difficulty with customs concerning such packages. In this connection it is regretted that, due to an inadvertence, customs authorities were not notified prior to the arrival in Miami of Mr. Jean Charbonnet, General Manager of the Banco Atlántida on November 19, 1942. The Legation may wish to express this Government’s regret to Mr. Charbonnet and to inform [Page 380] the Banco Atlántida that the $160,000 in currency taken from him has been released.
Currency forwarded on a collection basis for the account of individuals in the aforementioned cases of imports or exports exceeding $50 and deposits of large bills or large sums should be forwarded in separate packages and should be accompanied by a statement that such currency is not being forwarded for the account of the forwarding bank.
In discussing these matters with the Honduran authorities, the Legation may wish to keep in mind that the Honduran Government may not wish to relax its controls to the point indicated above but may of its own accord desire to proceed with its program to eliminate dollar currency as a circulating medium in Honduras. Should this be the case, it is not believed that the Legation should oppose this policy, as it is within the competence of any sovereign government to eliminate a foreign currency from its market if it so desires. In such event, however, the Legation should inform the Banco Atlántida and the Banco de Honduras that any dollar currency purchased by it under license from the Honduran Exchange Control Commission will automatically be released by the Treasury upon arrival in the United States if accompanied by an appropriate statement by the bank concerned to the effect that it was acquired pursuant to authorization from the Exchange Control Commission.
It is suggested that, after you have worked this matter out with the Honduran authorities, you arrange with those authorities for appropriate publicity. If possible, please telegraph the text of any public statement before it is issued so that the Department may, if it is felt desirable, make suggestions or comments thereon.
It is hoped that this airgram will enable you satisfactorily to settle the matter. If you have any further questions or problems, please inform the Department promptly. Please also keep the Department informed of all developments.