815.5151/230a: Telegram

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

88. From Treasury. Your 80, March 30, 4 p.m. Apparently you did not understand the suggestion in the Department’s 86.54 The use of gold to satisfy reserve requirements was not intended to reduce the effective cash reserves of the banks. Lempira silver coins held as legal reserves are not effective reserves for meeting the public demands for cash. Under Honduran law it appears that gold would serve fully as well as silver lempiras for reserves against bank deposits. Apparently 2 or 3 million lempiras in coins are now immobilized as reserves in the banks. If gold were utilized to fulfill the deposit reserve requirement, a large number of these silver lempiras would become effective cash available for active circulation in Honduras and would no longer be immobilized in the banks. An existing reserve deficiency would apparently be remedied by a similar acquisition of gold.

However, in view of your statement that the situation is extremely critical, the silver 50-cent pieces are being made available in New York by the Treasury Department and the interested parties are discussing the problem of expediting shipment. [Treasury.]

  1. March 29, p. 386.