Memorandum by the Chief of the Division of Far Eastern Affairs (Hornbeck) of a Conversation Between American and Chinese Representatives
Meeting at Department of State 10 a.m., May 9.
Present: The Secretary of State, Senator Pittman, Mr. Warburg, Mr. Tugwell,16 Mr. Taussig, Mr. Bullitt, Mr. Hornbeck, the Chief Chinese Delegate,17 the Chinese Minister,18 Mr. Pei, Mr. Wei, Mr. Young.
The Secretary of State explained the American Government’s conception of the purposes and general scope of the conference.
Mr. Warburg explained the American Government’s views with regard to monetary problems, price levels and currency.
Mr. Warburg concluded with the statement that we would welcome an expression of the Chinese Delegation’s views.
After some consultation among the Chinese group, Mr. Soong said that he was prepared to make a statement. He said that China’s tariff policy had been fiscal rather than protective. China’s tariff theory was that of free trade. On the matter of tariffs, the Chinese were in complete agreement with the United States. We would enter the conference on common ground.
Turning to the monetary question, Mr. Soong said, China’s outlook was different from that of other countries. In China silver is the standard of internal commercial transactions. On the part of other countries, silver is looked at from the point of view of international [Page 522]exchange. To a certain extent China debases silver in currency. They would welcome the linking of silver to commodity prices. They would like to see silver stabilized. Fluctuations of exchange are harmful. Soong himself did not believe that a higher price for silver would decrease the flow of exports from China. However, some people do not agree with that. He attaches much importance to the contemplated conference between silver-producing and silver-using countries. Indian silver still hangs over the market like a sword of Damocles. He would like to know what suggestions we have for stabilizing silver.
Mr. Warburg said: restore silver to its proper relation to commodity level. It is our feeling that the level probably should ultimately be about sixty cents—in terms of the current American dollar.
Mr. Sze said that an eight cent difference in exchange was a large difference. Senator Pittman said that silver, as a commodity, had always been a little below commodity prices. We might say to certain banks: carry a reserve of twenty-five per cent, one-fifth of which should be in silver. If silver is drawn out in process of exchange, fill in with gold. The tendency would be to transfer silver when above the index price and withdraw it when below. We might finally agree on the normal price in terms of the commodity price level. There would be a stabilizing factor. This was the idea: it had not yet been worked out in detail.
Mr. Soong asked: Could we not first agree on the general principles? Senator Pittman said that we should abandon the policy of debasing currency; all were in favor of this and favor restoring coinage to its old fineness.
There followed a discussion between Mr. Soong and Mr. Warburg of how the reserves would be operated. Mr. Young asked how the silver one-fifth of the reserves would be determined. The answer was given: “market value”.
Mr. Sze asked how India feels. Mr. Warburg replied that we do not know; but that the indications are that it would be possible to bring them into line; after all, “they are reasonable”; if they agree not to sell more than x million ounces per annum that would give certainty on that point.
There followed a discussion of Indian silver.
Senator Pitman gave an account of the bill which he introduced in Congress last year and explained what he thought might be done about Indian silver.
Mr. Soong said that China was the only country that uses silver as currency on a large scale, the only real consumer for that purpose: therefore, he asked, cannot China and the United States work very closely together?[Page 523]
Senator Pittman talked of an agreement19 between the chief producers of silver and the governments which use silver.
Mr. Soong said that it was surely not to the interest of India to have the price of silver go so low as to kill everybody’s trade.
Senator Pittman expressed concurrence. He said that it is very possible for the United States to have a reciprocity treaty with China that would have great value. He said we should withdraw restrictions on the rise of silver to its natural level. He did not anticipate any trouble with England or with India.
At this point Senator Pittman suggested that there be a recess in order to give the Chinese time to think over the ideas which had been presented to them.
The meeting then adjourned.