Foreign Relations of the United States Diplomatic Papers, 1934, The Far East, Volume III

893.5151/378: Telegram

The Minister in China (Johnson) to the Secretary of State

Peiping, March 14, 1934—5 p.m.
[Received March 14—4:12 p.m.]

120. With further reference to Department’s No. 43, February 17, 3 p.m.,¹¹ and supplementing my 97, February 22, 3 p.m.

1. News despatches bearing Washington date line continue to report interest of Congress in legislation having for its object rehabilitation of silver. It is reported that a recent proposal would require United States Government to purchase silver until ratio of 16 to 1 between silver and gold had been reached.

2. These reports continue to cause agitation at Shanghai and in Nanking. Agitation at Shanghai is being carried on by foreign residents of Shanghai who are large holders of real estate and Shanghai silver investment bonds and by Chinese bankers.

3. Both elements feared stimulation of price of silver by American Government purchases would result in flight of silver to United States with consequent fall in China’s commodity prices and financial panic.

4. Financial situation in South China has already been seriously disturbed by failure of remittances from Chinese emigrants.

5. Following remedies appear to be under consideration by Nanking Government should eventualities above mentioned threaten:

(a) Embargo on export of silver

(b) Export tax on silver

(c) Reduction of silver content changing silver dollar.

6. It is not believed that remedies (a) or (b) can be made effective in view of extraterritoriality privileges of foreigners and attitude of the foreign powers.

7. Remedy (c) is advocated by those who contend that the purchasing power of [silver] has been increasing since middle of 1931 resulting in a decline of Chinese wholesale prices and that the purchasing power of silver will continue to increase. A parallel is drawn between this situation and that which existed in gold-standard countries which have been forced to abandon the fixed gold standard because of the economic consequences of the rising purchasing power of gold. They recommend that China in the event of rising ratio power of silver take similar steps and reduce silver certifications of the dollar selections, in other words abandon a fixed silver dollar standard for a currency standard applied to commodities.

8. Naturally both government and financial circles and private investors contemplate with considerable apprehension a situation such as might arise if above-described remedial steps were taken as it is not believed that the Chinese Government is sufficiently master within its own house to carry through such a complicated financial plan.

9. Financial and government circles of Shanghai and Nanking are additionally perturbed because they believe that in the face of a world-wide tendency to abandon silver the plan now being advocated in Congress might if carried through prove but a temporary expedient as United States Government would again as in 1893 find itself unwilling further to buy large stocks of silver and would unload or discontinue purchase causing silver to resume its normal fall in terms of gold.

Johnson

11. Not printed.