893.515/839
Memorandum by the Under Secretary of State (Phillips)
On Secretary Morgenthau’s request, I attended a conference which he had this morning with the Chinese Ambassador. Present also were Mr. Oliphant and Mr. Lockhead, two Treasury experts.
The Ambassador reported that he had received a further reply from his Government to the proposal which he had submitted to Nanking as a result of his conversation with Secretary Morgenthau on Saturday evening; his Government agreed to proposals No. 1, 2 and 4.45 After considerable discussion Mr. Morgenthau agreed that the Chinese response to proposals was satisfactorily answered in the Ambassador’s cable, which was to the effect that one representative of an American bank was to be a member of the stabilization committee. Mr. Morgenthau pointed out that proposal 5 was the basic one and that there had been no answer to this proposal. The Ambassador answered that his Government would agree to the maintenance of the yuan at its present value; he admitted that nothing had been said with respect to tying it with relation to any other currency, whether the dollar, pound sterling or the yen; Mr. Morgenthau [Page 638] said very definitely that he could not agree to make the silver purchase in question unless there was a definite understanding in advance that the Chinese Government would tie up to the dollar; he pointed out that the yuan would have to tie up to either the dollar, pound sterling or yen and that all he was asking in connection with this deal was that it should be fixed to the dollar; he pointed out that, in order to carry through their program, it was necessary for the Chinese Government to put through the deal; otherwise, there would be a great loss of confidence in the yuan if it suddenly should develop that the Government of China had not the means necessary for this purpose; Mr. Morgenthau felt that the Chinese Government was putting up a good game of “poker”, that undoubtedly they were bluffing, since they could not get along without the contemplated support from the American Government; he stressed his sympathy with what the Chinese Government was endeavoring to do; he said that we were glad to help, but he made it clear over and over again that the help could not be extended without the tie up to the dollar.
During the conversation the Ambassador asked whether Mr. Morgenthau would consider a loan, to which the latter replied that he could give no encouragement to any loan in which the United States was acting alone, indicating at the same time that, if other governments participated, he might give a different decision; he insisted, however, that there was no need of a loan if the Chinese Government would put through their present plan.
The Ambassador mentioned the difficulty of referring again the fifth proposal without some alteration in the language. It was agreed, therefore, that Mr. Oliphant and Mr. Lockhead (the two experts present) should draft a new proposal and bring it over to the State Department this afternoon, in order that we might, if desirable, touch it up in diplomatic language.
After the Ambassador had left we had some exchange of views with respect to the new formula for proposal five. I asked whether it would be satisfactory to avoid an announcement by the Chinese Government that they had tied up to the dollar, or at least to delay this action for a little while and so do something to “save their face”. Mr. Oliphant believed that something along these lines could be done and would endeavor to include it within the new formula.
3 P.M. Mr. Oliphant brought to the Department this afternoon the accompanying draft for proposal five.46 Mr. Hornbeck and Mr. Feis and I discussed it with Mr. Oliphant and agreed that there was nothing which this Department could add to the formula.