891.5151/227: Telegram
The Minister in Iran (Dreyfus) to the Secretary of State
[Received 12:04 p.m.]
127. Conversations between British Legation and Iranian Government on financial matters continue in more cordial atmosphere with hopes of success. British Legation would welcome settlement along following lines:
(1) Iranian Government to supply rials against sale of sterling at controlled rate of exchange to be fixed for duration of war, (2) British to convert sterling into dollars insofar as dollars are needed for imports, (3) British to convert part of sterling into gold and guarantee remaining balances against depreciation in terms of gold. British Legation believes Iranians would agree to such a settlement with right to convert from one-third to one-half of sterling balances into gold. London, however, for reasons of prestige purposes appears to favor obtaining rials through sale of dollars by American Government.
While Iranians will probably agree to some such solution they would be more pleased arrangement suggested in Department’s 102, April 25.42 The principal stumbling block will be rate of exchange. Iranians taking advantage of their growing foreign exchange balances wish to push rate up to somewhere between 80 and 120. I agree with British that settlement should be made only on basis of fixed exchange rate preferably present 140 but not lower than 120. If rate is not fixed there will be ever greater pressure to alter it upward as dollar and sterling balances accrue thus making our commitments in Iran an uncertain and always increasing quantity. It should be emphasized [Page 309] that Iran’s present favorable foreign exchange situation does not arise out of ordinary commercial transactions but rather from allied war work in Iran much of which will be of lasting benefit to this country. I suggest that the generous arrangement suggested by Department might be used as a bargaining point to obtain equitable treatment as to exchange rate.