891.00/1944: Telegram
The Minister in Iran (Dreyfus) to the Secretary of State
[Received 10:36 a.m.]
378. Reference that part Department’s 306, November 5 dealing with finance.
- (a)
- Causes of Iran’s currency crises are: (1) Large Allied war expenditures of about 400,000,000 rials monthly. Iranian note issue increased from 1550 million rials in August 1941 to 3 billions in October 1942. It is now proposed to issue some 2 billions additional for Allied war needs and Iranian wheat purchasing program. (2) Rise in price level. Banque Mellie price index rose from base of 100 in 1937 to 193 in August 1941 and 331 in September 1942. Cost of living index for same periods was 100, 209 and 418. This is perhaps main cause of need for ever larger note issue and also an effect of increased circulation. (3) Failure of notes to complete normal cycle and return to banks for reissue. This due to: First—lack of confidence in rial which causes Iranians to keep their money turning over by purchase of lands and goods rather than placing it in banks. Second—speculation by all classes has reached huge proportions. Third—hoarding of notes by workers and farmers exists but sum involved is probably not great. Hoarding of money by upper classes is not appreciable.
- (b)
- Possible remedies might include: (1) Prohibition of export of foodstuffs and the importation of essentials to extent possible, (2) drastic credit restrictions by banks, (3) excess profits, (4) rationing, [Page 200] (5) drastic laws to control prices, rents and speculation, (6) severe enforcement of hoarding laws, (7) control of Allied buying to prevent present payments of exorbitant prices, (8) putting silver token coins into circulation, and (9) last but most important the floating of an Anglo-American rial loan repayable 60% in pounds or dollars and 40% in gold. Iranian Government is giving consideration to all of above measures but is awaiting arrival of Millspaugh before proceeding. (Allied help will be required to accomplish most of these objectives.)
- (c)
- Iranian currency law. A high Iranian finance official suggests Iranian currency law along following lines and has taken matter up urgently with Prime Minister: (1) Iranian gold and silver holdings to be revalued on basis of world prices which would result in profit to Banque Mellie of almost 800,000,000 rials. (2) Issue of notes to be divorced from banking section of Banque Mellie and placed in special department under supervision of present currency board with Millspaugh a permanent member (Iranians object violently to any suggestion of an Allied Iranian currency board).
- 3.
- Of total note issue 942,000,000 rials would be covered by crown jewels as collateral security. Remainder of note issue would be fully covered (a) 60% by gold and silver (silver only to extent of present holdings) plus those dollars and pounds which are freely convertible into gold in conformity with agreements with Allies, and (b) 40% by those dollars and pounds which are not freely convertible, but which would be guaranteed by Allies against depreciation in terms of gold.
- 4.
- Exchange rate would be fixed scientifically.
Agreement with American Government on various points especially gold conversion would be necessary. British have expressed willingness to increase gold conversion of sterling to 60% instead of 40% provided in Anglo-Iranian agreement.
Foregoing is given in full in order that Millspaugh may have opportunity to study it before his departure. Iranian Government would appreciate any comment he may wish to make. Millspaugh’s presence in Tehran is most urgently required and I urge his immediate departure.