832.5151/5–247

Memorandum by the Chief of the Division of Brazilian Affairs (Dawson)

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A stabilization fund arrangement between the Brazilian and U.S. Treasuries has been in effect for some time but no use had been made [Page 426] of it by Brazil. Mr. Corliss of FN informs me, however, that within the past week Brazil has called on the Treasury twice for exchange under the agreement, the sums involved being $20,000,000 and $40,000,000. As I understand the procedure, Brazil merely earmarks gold which it has on deposit in New York and our Treasury turns over the equivalent in dollars.

This sudden Brazilian use of the stabilization agreement has two interesting implications. It would seem that the Brazilian exchange situation is getting tight, partly as a result of heavy imports from the United States recently. On March 27 Brazil put a long list of commodities of a “luxury or non-essential” nature under import license procedure; interestingly enough these included such items as soap and shoes so there is probably a little protection mixed up in the measure. The Brazilian efforts to get their blocked currency holdings in Great Britain unfrozen are an added indication along this line.

The other important aspect is that Brazil has not yet taken any action to participate in the Monetary Fund.84 It has neither indicated the exchange rate it desires nor has it paid in its contribution to the Monetary Fund. We are thus in the somewhat anomalous position of supporting Brazilian exchange by a private agreement between the two Treasuries when the Monetary Fund has been set up for the very purpose and the Brazilians are delaying action to take advantage of it.

The Treasury stabilization agreement expires June 30 but presumably our Treasury would be amenable to extension, since there is no risk involved, unless somebody desires to use non-extension as a lever to get Brazil active in the Monetary Fund.

Allan Dawson
  1. The International Monetary Fund was established as a result of the decisions of the United Nations Monetary and Financial Conference held at Bretton Woods, New Hampshire, in July 1944. In airgram A–496, June 13, 1947, the Ambassador in Brazil reported that he had reminded the Brazilian Foreign Office that Brazil, while one of the seven countries to ratify the agreements of that Conference, had not deposited her financial commitments with the Fund (832.5151/6–1347).