The Chinese Minister of Finance (Kung) to the Chinese Legation31

An understanding with the United States concerning the silver purchase program is prerequisite to a decision regarding dealings with the monetary situation. The following proposal is made with the immediate objective of avoiding collapse and limiting deflation here.

As long as exchange is below the foreign silver parity unrestricted open market purchase invites illegal export. Any attempt to raise exchange to parity would involve further deflation and aggravate adverse balance of payment. Therefore it is proposed that the United States limit the silver purchase price pending further negotiation and adopt measures to avoid purchasing silver hereafter illegally exported from China. It is suggested that the United States buy only silver (1) newly mined (2) sold pursuant to the London Agreement32 [Page 529](3) to be delivered at New York or London within a brief period, say 2 weeks, thereby limiting the increase of such stock from illegal exports from China and thereafter buy only silver which the American Government is satisfied has not been smuggled in from China. Such measures are analogous to the American treaties against evasions of the prohibition law.

In the belief that accord can be reached to safeguard against further deterioration of China’s situation, we are prepared to transmit shortly an outline of further measures.

China greatly appreciates the careful consideration that is being given to this situation by the American Government.

  1. Telegram received at the Chinese Legation on January 19; copy handed to the Chief of the Division of Far Eastern Affairs by the Chinese Minister, January 21.
  2. Memorandum of Agreement on Silver Between the United States and Certain Other Powers, signed at London, July 22, 24, and 26, 1933, Foreign Relations, 1933, vol. i, p. 763.