File No. 893.51/2029
The Chargé in China ( MacMurray ) to the Secretary of State
Sir: Referring to the despatch (No. 2197) of August 13, in which the Legation reported concerning the promulgation by the Chinese Government of regulations contemplating the issuance of gold currency notes based upon a credit of 80,000,000 yen to be extended by certain Japanese banking interests represented by the Bank of Chosen, I have the honor to report that this matter has been so jealously kept secret by those concerned in the transaction that it has thus far proved impossible to obtain any definite or exact information as to the nature of the scheme contemplated or as to such arrangements as are believed (in spite of the denial of the Acting Minister of Finance, Mr. Ts’ao Ju-lin) to have been made with the interested Japanese banking group through Mr. Nishihara. There is enclosed, however, a translation (as given in the Peking Leader of August 15 and 161) of the memorandum on gold currency with which the Acting Minister of Finance submitted for promulgation by the President the sets of regulations which were forwarded to the Department in my despatch cited above. By way of comment upon the proposal, there are also enclosed an editorial article in the Peking Leader of August 16,1 a clipping from the same newspaper (August 17)1 professing to quote the explanations offered from an official source, and a translation (as given in the Leader of August 17 and 18) of a criticism of the regulations by Liang Chiu-sui.1
It will be noted that in the memorandum on gold currency, submitted by the Acting Minister of Finance, there are several references to the Chung Hua Trading Company to be organized “for the purpose of carrying [on] foreign trade in order to help the circulation of the said notes.” The regulations for this company were authorized by a mandate of August 22, published in the Official Gazette of August 28, as reported in my telegram of August 29, 8 p.m., and in a separate despatch (No. 2229) of to-day’s date1 which the Legation is addressing to the Department, to which I venture to invite attention.
In so far as concerns the conflict between the gold-note scheme and the option held by the British, French, Japanese and Russian [Page 156] banking groups, under the currency loan agreement of 1911, I beg to refer to my telegram of August 17, 5 p.m., and to enclose herewith a copy of the joint protest which the four banks addressed to the Ministry of Finance under date of the 16th ultimo. As reported in my telegram of September 6, 6 p.m. [9 p.m.], Mr. Ts’ao replied to this protest by a note verging upon flippancy, to the effect that the regulations in question had been drawn up in pursuance of a plan of financial currency reform, and that the banks need therefore feel no occasion for anxiety. The matter was thereupon referred to the four interested Legations for further action; and although the Japanese Minister was obliged to request some days’ delay in order to obtain the instructions of his Government in this matter, there was at no time any divergence of opinion as to the necessity of supporting the protest originally made by the banks; and on August 31 each of the four Legations sent to the Ministry for Foreign Affairs a note supporting that protest, all four notes in identical terms, except that the Japanese note included two additional paragraphs embodying a further and distinct protest against the adoption of a scheme of currency reform without reference to Baron Sakatani. …
There is enclosed herewith a clipping from the Peking Leader of the 4th instant,1 in regard to the protest of the Legations, with particular reference to the dualism of Japanese policy as exemplified in the Japanese Minister’s joining in a protest against a scheme negotiated by Mr. Nishihara, who is understood to be a personal representative of the Japanese Prime Minister. There is also enclosed a further clipping from the same source,1 quoting the Osaka Mainichi in regard to the antagonism between these two representatives of Japanese interests, and commenting upon the return of Baron Hayashi to Japan. It may be added that Baron Hayashi left Peking on the 6th instant, and at the time of his departure informed me that he expected to return in about five weeks. In this connection I take occasion to enclose herewith clippings from the Peking Leader of September 4 and 5,1 reprinting from the Far Eastern Review a summary of a recent official publication of the Japanese Ministry of Finance, detailing the steps taken by that ministry to extend Japanese investments in China, through the instrumentality of banks especially privileged for the purpose. Without laying undue emphasis upon the somewhat extraordinary statement of this official declaration, that “because of political instability in China investment in that country was very risky—financial transactions had to be carried on with secrecy and dispatch,” I venture to invite the particular attention of the Department to the establishment of a banking group, independent of the Yokohama Specie Bank which had theretofore represented Japan in the consortium for China business, and the designation of the Bank of Chosen, instead of the Specie Bank, “to act as a general financial organ to bring about unity of the currency system,” with a view to “helping the establishment of a gold standard everywhere, thereby leading to a fundamental reform of China’s currency.” …
[Page 157]It is now reported that Mr. Nishihara is about to return to Peking, and there is in the minds of those interested in the currency loan agreement of 1911 a question whether it is not his purpose to work with Mr. Ts’ao to defeat the option of the consortium or prevent its renewal upon its expiration on October 14 next. It is accordingly anticipated that the question of gold currency notes, which seems for the time to be in abeyance, may again become critical at that time. It has therefore seemed expedient, as suggested in my telegram, of September 6, 6 p.m. [9 p.m.], for the Legation to reserve until then the reiteration of the claim of our Government to be considered in respect to any plans for currency reform, in the sense of the Department’s telegram of October 13, 1917.1
I have [etc.]