Preliminary Report to the Honduran Government by the United States Technical Financial Mission to Honduras, July 31, 1943 63


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II. Recommendations

Our recommendations in this preliminary report seek to attain the following objectives:

The provision of means to satisfy the demand for more currency, up to the limits of the probable increase in needs during the next few months;
A greater concentration of the foreign exchange reserves of the country, under the immediate control of the Honduran monetary authorities;
A first step toward the development of monetary institutions that can be effectively used in the best interests of the country;
The preservation of the national character of the Honduran circulating medium;
A full utilization of the additional issue of banknotes by the Banco Atlántida without the 50 percent offset in lempira reserves that would be required by existing legislation; and
A saving of the costs of bringing into the country additional silver coins which would have to be re-exported later.

A country which wishes to follow a policy of exchange stability must provide the monetary authorities with some means of buying the accumulating quantity of foreign exchange in those periods in which the international balance of payments is favorable. The lack of such a provision in the Honduran monetary system not only causes difficulty at present, under war-time conditions, but also will involve inconveniences in the future, for in the normal course of its development a country must provide for a growth in its exchange balances as well as an increase in its domestic circulation requirements. This preliminary report provides no permanent solution for the problem, but it does try to obtain the same effect now by other devices and to [Page 392] give the public the local funds which it needs in exchange for foreign balances.

Measures to increase the available currency supply

The Mission recommends as a temporary measure that the lempira coins now immobilized in the banks’ vaults as required reserves behind notes and deposits be progressively released for circulation, if and as the need arises; and that they be replaced in the banks’ reserves by equivalent amounts of foreign exchange, deposited in special custody accounts, under the supervision of the Ministry of Finance and, if deemed advisable, of the Exchange Control Commission.

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In order that Honduras may be able to deal effectively with possible exchange shortages in the future, the foreign exchange reserves of the country should be concentrated in the Exchange Control Commission and in the banks, rather than dissipated in the hands of the public in the form of foreign coins and notes, which might be hoarded in times of an exchange crisis, i.e., precisely at the moment when they would be most needed by the authorities. The recommendation presented in this preliminary report would seek to maintain a high degree of concentration of these reserves.

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While this proposal of the Mission aims primarily at the solution of the present shortage of lempiras, it constitutes also a step in the direction of further reforms aiming at the modernization of the monetary institutions of Honduras.

Measures to reduce the demand for currency

To supplement the foregoing measures the Mission suggests that action be taken to reduce the demand for coins and banknotes in Honduras, by requesting the principal employers of the country (1) to distribute their payroll dates so that too many do not fall at the end or the middle of the month, and (2) to make more frequent payment of wages and salaries. The Government, as one of the largest employers, should of course take the lead in these changes.

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Possible need for additional measures

The measures proposed here are expected to take care of the Honduran currency needs for the next half-year or more, by which time some new procedures may be available to deal with the problem. Nevertheless, other expedients may have to be utilized, if the difficulties continue. It is not too early to consider the various possible measures available to the Honduran Government, even though further action may not be required for some time. In this connection the Mission [Page 393] offers its cooperation in the working out of additional steps or in consultation with respect to the suggestions made in this report.

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  1. The final report of the Financial Mission to Honduras is entitled “Report of the Technical Financial Mission on Monetary and Credit Conditions in Honduras.” (815.51/1047)