Ext 5001/41 'PERSIA – INTERNAL (Miscellaneous despatches).' [‎100r] (199/248)

authorities on numerous occasions, but little, if anything, has been achieved.
With the arrival of Dr. A. G. Millspaugh, the American Financial Adviser, the
situation began to be handled with more vigour, and the Majlis are now debating
a Bill (as will be shown in detail in a subsequent paragraph of this despatch)
to invest him with comparatively wide powers to control prices, reorganise the
system of taxation, &c., which, if rigidly enforced, should go a long way towards
placing the country on a more stable economic footing.
11. In order to absorb to some degree a portion of the existing surplus
purchasing power, a scheme was suggested by the Financial Counsellor to His
Majesty’s Legation, whereby His Majesty’s Government would exchange the
equivalent in gold bullion for a quantity of gold coins at present held by the
National Bank of Iran as part cover for the note-issue, and sell the coins in the
open market, with a reserve price of £12 an ounce. This sale of gold, which has
been sanctioned by all parties concerned, should have a beneficial effect on prices,
in so far as it is hoarded. It had been suggested from other quarters that the
scheme might be extended to other Middle East countries, but in view of the
probability that the sale of gold within the Sterling Area might promote a variety
of undesirable contingencies which Elis Majesty’s Government would not be
prepared to meet, the experiment is to be tried only in Persia, and here to a
limited extent, t he proposal is to put on the market gold to the equivalent of
100.000 gold sovereigns; should the experiment prove successful, a further
200.000 gold sovereigns may be forthcoming.
12. It was suggested by Dr. Millspaugh early in the year that gold should
be used instead of sterling to finance the war expenditure of His Majesty’s Govern
ment in Persia. He contended that the sale of gold would relieve pressure for
future increases in the note-issue, and thus prevent a further decline in the
purchasing power of the rial; and that the high bazaar price of gold would
actually relieve the sterling expenditure of His Majesty’s Government. It was
held by His Majesty’s Government, however, that. ‘ broadly speaking, war
expenditure in Persia could only be financed by the issue of rial currency, and
this at the rate of exchange laid down by the Financial Agreement. Also, inter
alia that the implications of this proposal in relation to our financial relations
with neighbouring territories must be of obvious concern to His Majesty’s
Government, whose stocks of gold are not unlimited.
13. The anomalous position whereby His Majesty’s Government was the
only one of the three Allied Powers in Persia to have a Financial Agreement with
the Persian Government has now been altered by the conclusion ^recently of a
boviet-Persian Financial Agreement, and the proposal of the signature of a
similar agreement between the Persian Government and the Government of the
United States. The Soviet Agreement, as foreshadowed in paragraph 27 of my
despatch No. 434 of the 21st December, 1942, is in less generousperms than our
own, but the United States Government have agreed, in their draft to furnish
Persia with dollars against all rials required by the United States, and to
exchange these dollars for gold. Phis may lead to pressure on us to increase our
undertaking to provide gold under Article IX of our agreement. Some mis
givings were also created by the inclusion in the American draft agreement of a
clause which accepted the principle of a variation in the rial/dollar rate of
exchange; and these two factors were seized on by the Majlis Commission then
discussing a Bill to ratify our Financial Agreements, as a pretext to defer the
question ot ratification pending a pronouncement by Elis Majesty’s Government
as to their intentions as to the convertibility of gold under our agreement and to
the rate of exchange. Subsequently we were informed by the United States
i reasury that the provision regarding the rate of exchange is common form in
all l nited States stabilisation fund agreements, and that it was not the intention
of the United States Government to varv the rate of exchange without nrior
consultation with His Majesty’s Government. ° f
14. I he cm rent) situation continues to cause anxiety An order for the
printing of notes to the value of 1,500 million rials is beino- carried out bv
De la Rue in London. These notes are scheduled to be delivered to Tehran in
varying consignments by the end of July 1943. At the present rate of \llied
war expenditure this sum will have been practically exhausted bv that time and
the note reserve will have reached the dangerously low level of about 200 million
rials appreciably less than one month’s Allied requirements. A further order
. of 2.400 million rials has accordingly been placed in London to meet the require
ments for the period the 1st August, 1943, to the 31st March, 1944. ?>.. eiffht
months at 300 million rials a month.
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