Papers Relating to the Foreign Relations of the United States, 1924, Volume I
The Minister in China (Schurman) to the Secretary of State
[Received March 31.]
Sir: Referring to my despatch No. 1999 of January 2, 1924,97 and pertinent correspondence relative to the payment in gold of the Indemnity of 1901 by the Chinese Government, I have the honor to transmit herewith for the Department’s information copy of an [Page 564] English translation made by the Legation of a note transmitted to the Chinese Government on February 11, 1924, by the Dean of the Diplomatic Body on behalf of the Governments of the Netherlands, Belgium, The United States, France, Italy, Great Britain and Japan, in reply to separate notes on this subject addressed by the Wai Chiao Pu to the Ministers of the aforementioned Powers on December 26, 1924 .98
I have been informed by an American adviser to the Chinese Government, in respect of the Chinese Government’s note of December 26, that the arguments advanced therein by Dr. Koo were with a view to a possible future submission of the entire matter to some form of arbitration.
I have [etc.]
The Dean of the Diplomatic Corps at Peking (Oudendijk) to the Chinese Minister for Foreign Affairs (Wellington Koo)
Monsieur le Ministre: The eight undersigned Ministers of the Netherlands, Belgium, The United States, France, Italy, Great Britain and Japan have taken cognizance of the note which Your Excellency addressed to them separately on December 26th last in reply to their collective notes of February 2499 and November 5 , 1923.1 regarding the payment in gold of the Indemnity stipulated for by Article 6 of the Final Protocol of September 7, 1901. The eight Ministers conclude from the above-mentioned note that the Chinese Government claims a right to pay the arrears of the Indemnity of 1901 at the rate of what it calls the current exchange of each one of the currencies inscribed upon the national bonds belonging to each of the Signatory Powers.
The Chinese Government bases its claim on the definition which it gives to the words “in gold” in the sentence of the letters of July 2, 1905.2 cited by the eight Ministers’ notes of February 24 and November 5 , 1923: “For each Haikwan Tael due to each one of the Powers China must pay ‘in gold’ the sum indicated in Article 6 of the Final Protocol as the equivalent of a tael”.
According to the Chinese Government’s contention, the words “in gold” have been used in this sentence to distinguish the gold standard monetary systems of the Signatory Powers from the silver standard [Page 565] monetary system to which belongs the Haikwan Tael, the currency in which the total of the Indemnity has been expressed.
The Chinese Government bases its claim in equal measure on the manner of payment of the Indemnity which, according to it, was definitively fixed by Section 3 of the letters of July 2, 1905; this method of payment (telegraphic transfer) appearing to it as solely devoted to the exchange of national currencies customarily used in the international exchanges.
The eight Ministers ought not to conceal from Your Excellency that study of your note has not altered the opinion expressed in their notes of February 24 and November 5 , 1923. The sentence taken from the letters of July 2, 1905, seemed to them and still seems to them to be perfectly clear. It means that for each Haikwan Tael due to each of the Powers China must pay in gold the sum which is indicated in Article VI. of the Final Protocol as the equivalent of a tael, comformably to the respective weights and legal standards of each one of the eight gold currencies mentioned in the said Article VI.; in other words, insofar as the franc is concerned, for each Haikwan Tael owed to Belgium or to Spain or to France or to Italy, China must pay 3.75 francs in gold or 3.75 × 0 gr. 290322 of fine gold.
In support of its definition of the words “in gold”, the Chinese note does not present any argument except the assertion that the known reports of the discussions between the Signatory Powers leading up to the Final Protocol were favorable to the Chinese Government’s contention. The eight Ministers are in a position to state that the reports of these discussions show the unanimous desire of the Signatory Powers to give to the words “in gold” the sense which they have set forth in the preceding paragraph. That is confirmed, moreover, by the documents pertaining to this matter. It suffices to call to mind the principal ones.
China having accepted the principle of the Indemnity on October 20, 1900, the Powers concerned themselves on the one hand in making separate estimations of the sums to which each one was entitled under this count and on the other hand in fixing the total sum which could be paid by China without hampering the progress of its Government and the development of the country. This last sum was fixed, on May 7, 1901, at 450,000,000 Taels by a letter from the Dean of the Diplomatic Body to the Chinese Plenipotentiaries. It was less than the total amount of the individual indemnities of the Powers which it was finally necessary to reduce. To bring about these reductions, to subsequently settle their respective portions of the total indemnity and finally to assure the just division of the arrears of the total indemnity in the proportions to be agreed upon among themselves, the Signatory Powers adopted gold as the basis of their [Page 566] calculations and the payments to be received. They decided and China agreed that the indemnity although expressed in Haikwan Taels was an indemnity “in gold” and that the rate in gold of the Haikwan Tael should be fixed on a definite day. This decision was transmitted to the Chinese Plenipotentiaries on July 30, 1901, in the following terms: “The sum of 450,000,000 Haikwan Taels payable ‘in gold’ at the rate of exchange of April 1, 1901, at 4% interest, represents the grand total of the indemnity demanded by the Powers. [”]
The rates of exchange of the Haikwan Tael on April 1, 1901, were inserted in Article 6 of the Final Protocol whose text it is fitting to quote below in order to cause to stand out clearly how the Powers and China insisted at that time on the importance of a payment “in gold”.
“Article 6. By an Imperial Edict dated the 22nd [29th] of May, 1901, His Majesty the Emperor of China agreed to pay the Powers an indemnity of 450,000,000 Haikwan Taels.
(a) These 450,000,000 constitute a debt in gold based on the rate of exchange of the Haikwan Tael in relation to the gold currency of each country in the manner set forth hereinafter.
|One Haikwan Tael||=||Marks||3,055|
|=||Pound Sterling||0.3. 0|
|=||Gold rouble (17,424 dolias fine)||1,412|
This sum in gold shall bear interest …
Capital and interest shall be payable in gold or at the rates of exchange corresponding to the dates at which the different payments fall due.”
In the above-mentioned text, the Powers were careful to define the meaning which they intended to give, and which China agreed to give, to the words “in gold”:
- The United States of America which has just adopted the gold standard specified that the rate of exchange of 0,742 referred to the “gold dollar”.
- Russia took the same precaution with regard to the gold rouble in adding the legal weight of fine gold of this currency.
- The currencies of Belgium, France and Italy have always been quoted at different rates in the international exchanges. On April 1, 1901, Belgian and French francs were quoted at 3.75 a Tael and were at rates almost alike and equivalent to par in gold; the Italian lire was valued at about 3.85 and the Spanish peseta at 5 to a Tael. But, [Page 567] even if the exchange currencies of these four states differ, their gold coinage is legally of the same weight and the same denomination, and it was to represent this weight of 0,290322 of fine gold to a franc that Belgium, Spain, France and Italy all adopted the same rate of exchange of 3.75 to a Tael.
- Finally all the Signatory Powers as well as China in using the words “rate of the Haikwan Tael to the gold currency of each currency [country?]”, excluded from the measures aimed at by Article 6 every evaluation of the Haikwan Tael in relation to the currencies of each country other than their gold currency. They have the right to refuse payment of a Tael in their silver currency, their fiduciary money, their exchange currencies, etc. …
The measures which the interested Powers took in the Final Protocol were confirmed by China in the text of the letters exchanged on July 2, 1905, as well as in the wording of the bonds delivered to each of the Powers and in the coupons attached to these bonds because Payment “in gold” was the procedure which they adopted in order to assure the distribution of the total Indemnity in the proportions agreed upon by them. To return to the definition of the words “in gold” in the sentence given above from the letters of July 2, 1905, it is clearly the gold value in conformity to the weight and legal standard of each of the currencies specified in Article 6, (a) and at the rates of exchange indicated in, the same Article as the equivalent of a Tael which China must pay to each Power for each Tael of the Indemnity of 1901 which she owes.
The eight Ministers have desired to show on what foundations the definition which was given by their governments and accepted in 1901 and 1905 by the Chinese Government for the payment in gold of the Indemnity of 1901 rested. In answering the first contention of the note of December 26, 1923, regarding the meaning of the words “in gold” they have, in so doing, refuted the second which, as the Chinese note itself admits, refers solely to the manner of execution of the obligations subscribed to by the Chinese Government in 1901. The character and the total amount of the debt owed by virtue of an obligation cannot depend upon the means adopted for the settlement of this debt.
After having recalled this principle of law which is certainly recognized by the Chinese Government, the eight Ministers consider it their duty to take up the principal points of the portion of the notes of December 26, 1923, which concern the exchange of letters of July 2, 1905. The arrangement resulting from this exchange confirmed and carried out Article 6 of the Final Protocol which it had completed. Such as it is, it answers perfectly to their present needs and the Signatory Powers have never thought of modifying it.[Page 568]
In recalling the circumstances which preceded and brought about the exchange of letters of 1905, the note of December 26, 1923, makes it evident that at that time the Chinese Government endeavored to secure payment of the arrears of the Indemnity of 1901 in silver and that it was obliged to recognize its obligation to pay “in gold”. This fact furnishes a new argument in favor of the ruling “in gold” as it has been set forth above. This is worth noting in passing.
It would be possible to dispute the correctness of this statement of the Chinese note to which the preceding paragraph refers. But the eight Ministers limit themselves in this instance to the repairing of one omission in the said recital and of noting that the arrangement of 1905 had for aim and object the solution of the problem presented by the changing of silver, the currency of China the debtor, into gold.
China, having no gold, has had to buy and still has to buy with the silver she possesses, that is to say, with Taels, the gold necessary for the service of the Indemnity of 1901. The method of this transaction not having been settled by the Protocol of 1901, occasioned the subsequent rise of discussions and difficulties ended by the exchange of letters of July 2, 1905.
By the terms of Section 3 of these letters China was entitled to bring about the payment to the Powers of the Indemnity of 1901 by one of three systems: “either in silver according to the price of silver on the London market, or in gold bills, or in telegraphic transfers.” The machinery of the two last systems, gold drafts and telegraphic transfers, differ only in the more or less rapid means of transmission of the document of exchange from one place to another with a resulting difference corresponding to the rates of exchange.
In the two cases, China, the debtor, buys with silver Taels instruments of exchange representing the amount of gold which she owes to her creditor. These purchases, insofar as the service of the Indemnity of 1901 is concerned, are generally made of the banking agents of the Signatory Powers at Shanghai. The arrangement of 1905 has at the same time and quite justly reserved to China the, right “to obtain drafts and telegraphic transfers to the best of her interests in any locality and in any bank as cheaply as possible, or by award.”
The three methods of payment enumerated in Section 3 of the letters of July 2, 1905, lend themselves perfectly to payment “in gold” as it has been defined above by the eight Ministers. The note of December 26 last has confused the quotations of the international exchanges by telegraphic transfer with the telegraphic transfer itself. Telegraphic transfer, in effect, is applied as well to a gold currency as to a silver currency, to a paper currency or an exchange currency.[Page 569]
When, on December 30, 1922, the Chinese Government attempted to resume the service of the Indemnity of 1901, in the matter indicated by its note of December 26 [1923?], her representative presented himself, according to established custom, to the Shanghai agents of the interested Governments to negotiate the purchase of telegraphic transfers in francs. The disagreement which ensued was solely about the rates of exchange of the Tael quoted by the two parties. If the representative of the Chinese Government had accepted the rate of the gold franc quoted by the agents of the interested Governments, these agents would have effected the required telegraphic transfers.
The Chinese Government, moreover, cannot be ignorant of the possibility of carrying on transactions in gold francs, since it must pay its share of the expenses of the League of Nations in gold francs and since it has accepted the gold franc as the currency of the Universal Postal Union and of its postal conventions with several countries.
The eight Ministers, accordingly, support the conclusions drawn in their notes of February 4  and November 5 , 1923, and in definitely affirming that for each Haikwan Tael due to each of the Powers under the heading of the Indemnity of 1901, China must pay in gold the sum which is indicated in Article 6 of the Final Protocol as the equivalent of a Tael conformably to the respective weights and legal standards of each of the gold currencies enumerated in the said Article 6.
The explanations which the eight Ministers have given above authorize them to state that they require only the complete and unmodified execution of the conventions drawn up in 1901 between China and the Signatory Powers with regard to the Indemnity of 1901. They insist upon this complete execution in order to cause to be respected the right of each one of the interested Powers to receive the proportion of a total Indemnity determined among themselves, whose service and guarantees have been placed under their common control.