[Enclosure—Translation]
The Chinese Acting Minister for Foreign
Affairs (Wellington
Koo) to the American
Minister (Schurman)
[Peking,] December 26,
1923.
No. 642
M. le Ministre: I have the honor to
acknowledge the receipt of the two joint notes, respectively of
February 24th25 and November [Page 601] 5th [3d]
last,26 which Your
Excellency and the Representatives of the other Signatory Powers of
the Protocol of 1901 addressed to this Ministry on the subject of
the payment of the indemnity of 1900 [1901].
I should have made an earlier acknowledgment but for the fact that
the importance of the question has rendered it necessary for the
Chinese Government to make a careful and comprehensive study.
In the two notes under reply Your Excellency was good enough to
inform the Chinese Government of the unanimous opinion of the
Signatory Powers that “there is no doubt whatever that the Protocol
of 1901 as well as the arrangement of July 2, 1905, provides in a
manner absolutely clear and indisputable that the indemnity of 1900
should be paid in gold, i. e., for each Haikwan tael due to each of
the Powers China ought to pay the sum in gold which is shown in the
said Article VI as the equivalent of one tael.”
Since the foregoing expression of opinion follows closely the
language of the Arrangement of July 2, 1905, the Chinese Government
would have little hesitation to give their concurrence if they felt
sure of the precise meaning which the Signatory Powers attach to the
phrase “in gold”. Judging by the context of the arrangement of 1905
as well as Article VI of the Protocol of 1901 upon which it is
based, the Chinese Government are inclined to the view that the said
phrase cannot be correctly construed to mean anything but the
respective gold currencies of the Signatory Powers in contrast with
the Haikwan tael, which is a silver standard and in the terms of
which the indemnity of 1900 is stipulated. In other words by “gold”
is not meant the gold metal but simply gold currency. This appears
clear from Article VI of the Protocol which, while declaring that
the four hundred and fifty million Haikwan taels of indemnity
constitute a gold debt, fixes the equivalent of the Haikwan tael in
gold not as a certain quantity of the gold metal but in the
currencies of the Signatory Powers issued on the basis of their
respective gold standards. Examination of the available records of
the discussion among the Signatory Powers which resulted in the
final drafting of Article VI of the Protocol of 1901 leads to the
same conclusion.
If there is any doubt as to what was intended to be the manner of
payment, it is resolved by the Arrangement of July 2, 1905, which,
while declaring the indemnity to be a gold debt, settles definitely
and once for all the precise mode of payment. It provides that
“China will make these payments, calculated
on the basis set forth above, which fixes the value of the
Haikwan Protocol tael in relation [Page 602] to the money of each
country, either in silver according to the price of silver
on the London market, or in gold bills, or in telegraphic
transfers, at the choice of each Power. China may obtain
bills and telegraphic transfers as best suits her interests
at any place and at any bank at the lowest price or by
public tender, provided that the payments in gold be made to
each Power direct on the due date. It is understood that
China is responsible for the exact payment of the
transfer[s] and the bills. Each Power in accepting the
present proposals must inform the Chinese Government which
of the three methods cited above is the one it chooses till
the debt is extinguished.[”]
On the same day (July 2, 1905) by separate Notes addressed to the
Waiwupu the Signatory Powers indicated their preference, each for
itself, for one or another of the three stipulated methods of
payment. The selections made by the Powers signatory of the Notes
under reply were as follows:
| Methods of Payment |
Country |
| For telegraphic transfers in their respective
currencies. |
Belgium, France, Great Britain, Holland, Italy, and
the United States of America. |
| Provisionally for payment in silver according to price
of silver on London market (but in 1906 definitely
selected payment by draft) |
Spain. |
| For telegraphic transfers in sterling on
London. |
Japan. |
These selections were proposed and accepted with the
express understanding that they were to remain effective “till the
debt is extinguished”. Ever since the conclusion of the Arrangement
of 1905, they have been faithfully applied to the respective
countries without interruption, and have heretofore given no
occasion for a difference of views in their application.
In their Notes of December 28, 1922,27 addressed
to the Ministers of Belgium, France, Italy and Spain, to which the
two Notes now under consideration were intended to be a reply, the
Chinese Government did not wish either to place a new interpretation
on the language of Article VI of the Protocol of 1901, which has
been made clear by the Arrangement of 1905, or to propose a
modification of the precise mode of payment stipulated in the said
Arrangement. It was and remains their intention to continue to make
the indemnity payments [Page 603] to
the present Signatory Powers as heretofore, each according to its
own selected method of payment, in full conformity with the said
Article VI as interpreted and amended by the Arrangement of
1905.
I do not understand that by the two Notes under reply the Powers
desire to propose a radical change in the established mode of
payment: they appear, however, to intimate that the telegraphic
transfer should be so effected that the proceeds will not merely
amount to the fixed sums in the respective currencies of the Powers
but will be in gold specie or the equivalent thereof in value. If
this should be the view of the Signatory Powers, the Chinese
Government do not feel able to accept it.
Telegraphic transfer is not only the stipulated mode of payment for
most of the Powers signatory of the Protocol and has been invariably
applied to them in the past ever since the Arrangement of 1905 was
concluded, but it is also a method of international exchange of
which the meaning and scope are perfectly well-known. The
telegraphic transfer rate between China and the gold-standard
countries is constantly fluctuating, even more so than that between
any two gold-standard countries, as silver is but a marketable metal
in those countries that have demonetized it. It fluctuates according
as the value of one currency rises or falls in the terms of the
other. Such fluctuations may be due to one or more causes: they may
be due to an adverse or favorable trade balance, they may be due to
currency inflation or depletion of money, or they may be due to a
combination of various causes into the intricacies of which it is
not necessary to inquire here: but whatever be the cause or causes
of fluctuation, it always refers to the money that is current. If
therefore for one reason or another specie has been driven out of
circulation by currency inflation, as is the case with the francs,
the money that can so purchased must be the money obtainable on the
market.
Moreover, exchange fluctuations are unavoidable when payment is
required to be made by telegraphic transfer, and since the
stipulated medium of payment is the currency of each country, such
fluctuations, unfavorable as they may be for the time being to one
party or the other, do not appear to constitute a practical ground
for abandoning the currency as the medium of payment and adopting
specie instead. For it would scarcely be possible to determine at
what stage of the fluctuations of the exchange rate should the
currency be abandoned in favor of specie to make a settlement.
Indeed, a different application of the chosen method of payment would
not only be incompatible with the generally accepted practice of
“telegraphic transfer” but also contrary to the intent and purpose
[Page 604] of the Arrangement of
1905. For it will be recalled that no sooner had the first
installment of the indemnity been paid than a difference of opinion
arose as to the precise nature and extent of the obligation which
China had assumed under Article VI of the Protocol of 1901. The
controversy was brought about by the unexpected rise of the gold
exchange rate which caused a deficit in the respective sums in the
gold currencies though China paid the stipulated amount in Haikwan
taels. China maintained that while the indemnity of the Signatory
Powers was a gold debt it had been converted into silver at the rate
stated in the said Article, and that her total obligation was
therefore expressly limited to 450,000,000 Haikwan taels with
interest at 4% in the bond which she had signed and delivered to the
Diplomatic Body, so that she had fully discharged her obligation
when she had paid the stipulated amount of Haikwan taels. For nearly
three years the Chinese Government declined either to sign the
fractional bonds in gold or to make up the deficit on account of
payment in silver. It was only after the Powers subsequently agreed
definitely to fix the future mode of payment applicable “till the
debt extinguished”, that they consented to sign the fractional bonds
stated in the respective currencies of the powers and in addition to
pay to them 8,000,000 Haikwan taels, as compensation for the loss in
the gold exchange for the years 1902–1904. The result was the
Arrangement of 1905 and the Powers made their selections on the same
day.
The Chinese Government accepted the Arrangement of 1905 and, with it,
the risks of fluctuation on the exchange rate from month to month
and from year to year, because they understood that while they might
thus incur losses, as they have in fact incurred from time to time
in the past, there might also at times be gains in their favor.
In point of fact the fluctuations of the gold exchange rates have
varied from month to month. From July 1905 when the new Arrangement
was put into force to November 1917, when by the arrangement between
China and certain other Signatory Powers of the Protocol the
indemnity payments were suspended for five years,28
there were actually 140 months during which payments were effected,
a few months immediately following the Revolution of 1911 being
excepted for no payments were made. As regards the rates of exchange
for these 140 months, a good illustration may be found in the
fluctuations of the exchange on Paris. During 66 months the rate was
favorable to China, as it went above the Protocol rate of 3.75
francs per Haikwan tael; and during 74 months it was adverse [Page 605] to China as it went below
the said Protocol rate. The highest and therefore most favorable
rate to China was 6.69068 francs per Haikwan tael for August 1917
and the lowest and therefore least favorable rate was 3.03008 francs
per Haikwan tael for November 1914. Although the fluctuations have
thus been wide as well as varied, the Powers have always received
the stipulated amounts in their respective currencies from month to
month and from year to year.
In view of the foregoing considerations, the Chinese Government are
of the opinion that the word “gold” as used in Article VI of the
Protocol of 1901 and in the arrangement of 1905 cannot be reasonably
construed to mean anything other than the currencies of the
Signatory Powers issued on the basis of their respective gold
standards and that whatever exchange rates prevail at present or are
likely to prevail for some time in future, favorable or unfavorable
to China as compared with the Protocol rates, they cannot be
considered as a valid ground either for placing a new interpretation
on the said Article VI or for proposing a radical departure from the
mode of payment selected by the Signatory Powers in accordance with
the said Arrangement.
I avail myself [etc.]
