893.515/379
Memorandum by Mr. Raymond C. Mackay, of the Division of Far Eastern Affairs, of a Conversation Between the Chief of the Division (Hornbeck), the Economic Adviser (Feis), and Mr. Jean Monnet of Paris
Mr. Monnet stated that, with a view to effectively putting a stop to the outflow of silver from China and to reestablishing confidence in the Chinese financial structure, the Chinese Government hopes to float a bond issue in China which will attract both foreign and Chinese capital. Mr. Monnet stated that the proposed issue, which will be handled by the China Development Finance Corporation, will consist of foreign currency bonds, probably sterling bonds; that the returned portions of the Italian, German and Russian Boxer Indemnities, which should permit of a capitalization of twenty million sterling, will be used as security for the proposed bond issue; and that, with a view to strengthening the position of Chinese banks it has been suggested that a portion of the new foreign currency bonds be issued to Chinese banks in exchange for old Chinese currency bonds.
Mr. Monnet further stated that as a practical matter the proposed bond issue could not be floated abroad; that, although most of the members of the American Group of the China Consortium are by law prohibited from participation in such an issue, a few of the members are free to act and have indicated an interest in the new issue; that the Hong Kong and Shanghai Banking Corporation is prepared to participate if approval of the British Treasury can be obtained; that the British Treasury, however, has indicated its disapproval of that part of the proposed project which provides for the exchange of old Chinese currency bonds for bonds of the new issue; that Mr. Norman42 of the Bank of England has indicated that in his opinion the proposed project should be handled by the China Consortium.
Mr. Hornbeck inquired what practical measures could be taken to assist the Chinese Government in its present financial difficulties. Mr. Monnet replied that deflation has already occurred; that the fear now exists that banks in China will be unable to redeem their note issues; and that what is most urgently required is a reestablishment of confidence in Chinese currency.
Dr. Feis stated that exports of silver from China automatically create assets in some other form and that he did not understand what has become of such assets. Mr. Monnet stated that in his opinion most of the silver exports from China have been effected by foreign banks and that Chinese exports of silver to a large measure have been confined to satisfying the heavy adverse balance of trade.
[Page 460]Mr. Hornbeck again asked what concrete proposals Mr. Monnet had to offer. Mr. Monnet replied that there must be occasioned a heavy inflow of silver into China; that the proposed bond issue will prove helpful but that the new funds thus acquired will not be sufficient to stem the tide; that he therefore wished to know whether the American Government would grant a loan to China, possibly through the medium of the Export-Import Bank.
Dr. Feis stated that the Export-Import Bank is by law prevented from acquiring foreign securities. Dr. Feis inquired whether the situation would not be improved materially if it became known that the price of silver had been pegged at its present level. Mr. Monnet expressed doubt and stated “The shock has been too great.”
Dr. Feis inquired whether the Chinese Government could force banks in China to cause the return of their silver exports. Mr. Monnet replied “what is gone, is gone.”
Dr. Feis inquired whether delayed delivery of silver purchases would prove helpful. Mr. Monnet replied that it would not as silver so purchased is earmarked and therefore out of circulation.
Mr. Hornbeck stated that the American Government has repeatedly indicated its willingness to discuss the situation with representatives of the Chinese Government; that if any concrete plan is proposed by the Chinese Government it will receive careful scrutiny; and that statistical data and definite proposals have not been presented. Dr. Feis added that the silver policy of the United States is largely in the hands of the Treasury Department and the Federal Reserve Bank.
Mr. Monnet, in taking his leave, stated that he would call at the Department next week and that in the meantime he would endeavor to obtain such additional facts and figures as might prove helpful in an attempt to clarify the situation.
Note: Mr. Monnet handed to Mr. Hornbeck a copy of a self-explanatory telegram (attached hereto43) dated December 20, which telegram contains a confidential message addressed to Mr. Monnet by Mr. T. V. Soong.