815.515/125: Telegram

The Secretary of State to the Minister in Honduras (Erwin)

86. Your 75, March 22. This Government has no objection to the use of United States silver coins for internal circulation in Honduras and will cooperate in making such coins available. In view of the urgency of the matter, however, we wonder whether it would not be a better procedure for the Honduran banks to utilize gold to replace some of the lempira coins now held as reserves behind their deposits, under Article 18 of Decree No. 80 of March 11, 1937. Apparently, this would release more than 1,000,000 lempiras for actual circulation without violating any requirement of Honduran law. With this purpose in mind, could not the Exchange Control and Monetary Stabilization Commission sell to one or both of the banks the gold which it now has in custody deposit with them, totaling $108,915? It appears that this would release 217,830 lempiras for circulation purposes.

To supplement this, might it be possible for gold to be purchased and placed on earmark at the Federal Reserve Bank of New York and counted as part of the reserve against lempira deposits.

As a third possibility it might be suggested that, if immediate receipt of gold is required, perhaps the Honduran Government or the Exchange Control Commission could purchase the gold in New York from the United States Government or in Mexico City, arrange for [Page 387] shipment to Tegucigalpa, and subsequently allocate the gold to the banks.

Will regulations permit or can they be amended to permit the banks to hold gold as reserve for notes issued? If so, perhaps a further quantity of silver lempiras could be released for circulation.

Pending a decision on the question of utilizing gold, the United States Government will make preliminary arrangements for the shipment of silver coins which will be held in abeyance until the wishes of the Honduran Government are determined.

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