The Ambassador in Cuba (Braden) to the Secretary of State

No. 961

Sir: I have the honor to refer to my despatch no. 513 of July 20, 1942, and to acknowledge the Department’s instruction no. 499 of August 15, 1942, on the subject of proposed banking and monetary legislation for Cuba.

The Department’s instructions have been noted and will, of course, as always, be meticulously followed.

Hearings in Congress on the proposed legislation are scheduled to begin shortly. The Habana Clearing House has submitted to the appropriate Senate Committee a 26½ page objection to several fundamental aspects of the draft law and has suggested alternative procedures. Two copies of this document are enclosed herewith.70

I very much appreciated the opportunity afforded me to discuss this matter with Lieutenant Southard during his visit to Habana, and since he and I, in airgrams nos. A–87 and A–90 of August 19,71 fully outlined what my thoughts have been and are with respect to the proposed legislation, it appears unnecessary for me now to extend my views to any great length. Moreover, I trust that on Lieutenant Southard’s arrival in Washington, his more detailed verbal account of my opinions and my conversations with him may clarify both the Department’s and the Technical Mission’s understandings in the premises. I do wish to emphasize, however, that my despatch under reference was entirely in consonance with the Department’s instructions—“to assist Cuba in every appropriate way”.

As Lieutenant Southard informed me here, the Technical Mission did not study the political aspects of this matter, and therefore it did not go into the repercussions which the widespread prevalence of [Page 311] corruption in Cuba might have on the proposed banking and monetary reforms. These unique conditions of corruption must inevitably have an important bearing on the success of or failure of the pending legislation. Hence, I would have been delinquent in my duties had I not warned the Department as I did in my despatch no. 513.

In order that the record may be perfectly clear, the following additional observations appear pertinent:

1. Never have I even implied that the Department “undertake to torpedo the Mission’s report”. On the contrary, my ideas were submitted with a view to insuring the successful operation of the program which was recommended by the Mission.

2. With reference to numbered paragraph “1” of my despatch under reference, and of the memorandum72 attached to the Department’s instruction, I am glad to learn that the “underlying situation” referred to by me was carefully studied by the Technical Mission and I only regret that a detailed written report thereon does not appear to have been prepared, since such an analysis, I know, would have greatly assisted me to a better comprehension of the entire matter and, no doubt, would be a valuable addition to the Department’s and this Embassy’s files.

3. Whether or not the present time is propitious for the initiation of monetary and banking reforms in Cuba, is a question of opinion. As Lieutenant Southard has reported, I still feel that the inauguration of these measures may advantageously be deferred, but I, of course, respect and will follow the Department’s views in the premises. However, it should be noted that Lieutenant Southard agreed with me that, under the circumstances, this is a difficult decision to make. Therefore, I doubt that he would so unreservedly express the opinion given in Article 2 of the Department’s memorandum when it states that “the present is a propitious time for the institution of monetary and banking reforms”. In this connection, the memorandum in the same paragraph speaks of the “heavy net influx of dollar payments into Cuba” and “the inflationary repercussions of this on the Cuban economy”. The measure of inflation which may or may not occur here would seem to depend more on the amount of sugar which we purchase from Cuba than on the receipt of dollars from our military projects, Nicaro Nickel, etc. If, as now seems likely, sugar purchases are to be materially reduced for 1943 the “repercussions” here might be deflationary since the flow of dollars into Cuba on construction projects related to the war might not offset the lesser amount of sugar purchased.

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4. The Department’s memorandum, in Article 3, holds that there would seem

“to be no reason to assume that the establishment of a stabilization fund and elimination of the dollar as legal tender will straightway plunge Cuba into an exchange control régime unless the Cuban Government blandly disregards the advice of the Technical Mission and attempts a rapid elimination of dollar deposits.”

The “rapid elimination of dollar deposits” apparently is contemplated by the draft law, when it provides that dollar currency will cease to be legal tender 180 days after the law’s promulgation or sooner if the President deems it advisable. Moreover, the taxes provided in the draft law, if enacted, would tend further to force the withdrawal of dollar deposits. Thus, these two stipulations might be influences working towards the establishment of “an exchange control régime” in Cuba.

5. Admittedly, practically all, if not all, Governments derive seigniorage profits from their issues of currency. The only question which I wished to raise in my despatch under reference was the degree to which this procedure may be carried safely in Cuba. I am glad to note that the Department is entirely satisfied in this particular.

6. The observations made in Article 4 of the Department’s memorandum are entirely accurate from a purely factual aspect, but the point, which I should perhaps have made clearer in my despatch, was that in matters of this kind, public and press discussions instead of being based on lucid, honest expositions of fact are not infrequently characterized by prejudice, and attempts to find a scapegoat which, in this instance, I fear might be the Technical Mission and the Department.

7. There appears to be no fundamental difference in principle between the views of Article 5 of the memorandum and of my despatch, wherein I began with the statement: “That Government should control banking and currency is a sound postulate providing it can furnish honest and competent management”. As the memorandum accurately observes, the essence of my objections to the proposed legislation is that I doubt whether the Cubans presently are competent to furnish honest and able management and that, as the Technical Mission reported, “a poorly administrated central bank or stabilization fund would add greatly to the difficulties that already exist”.

8. At the end of paragraph 2 of Article 3 of the Department’s memorandum, the statement is made:

“It would not appear, however, that this Government could properly attempt to deny to Cuba the sovereignty over these matters which is enjoyed by all independent countries”.

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The last paragraph of Article 5 of the memorandum reads:

“Finally, it is difficult to see why an exception should be made with respect to monetary and banking matters in the exercise of sovereignty by an American republic. …”

By these and other commentaries, the memorandum would seem to imply that I have made suggestions which, if put into effect, would be detrimental to Cuban sovereignty. I am astonished that any such inference could have been drawn from my words. I am dedicated to the principles and policies of our Government in these particulars. I believe my record has always been forthright and clear on this and I can see nothing, I repeat nothing, in my despatch under reference which in the slightest could justify the memorandum’s misinterpretation of my stand.

My thought that we might discreetly suggest to the Cuban Government that the central bank-monetary legislation could be deferred to a more propitious time is no more an impairment of this country’s sovereignty than are any or all of the recommendations made in the several memoranda prepared by the Technical Mission and in particular the Fourth Report commenting on the draft law. Similarly my suggestion is no more an infringement of Cuban sovereignty than is the antepenultimate paragraph of the Department’s instruction no. 499

“to support informally and as occasion may arise the basic recommendations of the American Technical Mission, particularly when the proposed legislation is in conflict with the specific recommendations of the Technical Mission and where such departures from the Mission’s recommendations would appear likely to work undue hardships on American banks and indirectly on Cuba’s own basic interests.”

The Cuban Government obviously is free to accept or to disregard these and the many other suggestions on a myriad of subjects which are from time to time made by our Government with a view to propagating our mutual advantage, friendship and respect.

9. In article 6 of my despatch No. 513, I wished merely to indicate some of the conditions which might be contrary to the Technical Mission’s admonition, “care should be taken to protect the (member) banks against loss of principal on their subscriptions to the central bank”. For instance, in paragraph (a) of this article I desired to bring out that no really important national banks existed here to exercise a beneficial restraint on the central bank. Also, in sub paragraph (f), the author of the memorandum seems to labor under the erroneous impression that I favor a 100 percent reserve behind money, whereas the question of what constitutes appropriate reserves was not raised by me.

Respectfully yours,

Spruille Braden
  1. Not printed.
  2. Neither printed.
  3. Dated August 3, p. 301.