893.515/1292: Telegram

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

158. My 157, March 13, 11 a.m.7 Following has been received by Ministry of Finance to Reuters:

“March 12, 1938. With the outbreak of hostilities in Shanghai in August last year, a gentlemen’s agreement was made among the bankers at the instance of the Government, with the object that foreign exchange should be furnished only for legitimate purposes. The operation of the agreement has made it possible for trade to be carried on despite all difficulties and for confidence in the currency to be steadily maintained.

The recent organization by the Japanese militarists, through their puppet régime in Peiping, of the so-called Federated Reserve Bank, [Page 4] issuing banknotes not convertible into free foreign exchange, is a nefarious effort to undermine the national currency and to obtain the foreign exchange funds of the country.

In conforming with the spirit of the gentlemen’s agreement, and to enable the country to meet the new situation created in North China, the Government has decided to [on?] the following revised procedure:

As from March 14th, 1938, sales of foreign exchange shall be centralized through the Central Bank of China at the seat of the Government. For convenience the Central Bank of China may establish a forwarding office in Hong Kong.
Banks desiring to purchase foreign exchange for legitimate requirements shall apply to the head office of the Central Bank of China or through its forwarding office at Hong Kong in accordance with the procedure separately announced.
After consideration of the application, the Central Bank of China shall furnish foreign exchange at the existing level of rates.

Procedure for obtaining foreign exchange.

Banks desiring to cover any legitimate demand for foreign exchange for their customers in excess of the amounts obtained from purchase of bills of exchange, inwards remittances, and other ordinary market operations, et cetera, may apply to the head office of the Central Bank of China or through its forwarding office in Hong Kong.
Such banks shall lodge their applications with the head office of the Central Bank of China or its forwarding office in Hong Kong in the form prescribed by the Ministry of Finance.
Applications shall be made before 10 o’clock every Thursday morning. After consideration of the applications a reply shall be communicated to each application by 10 o’clock on the following morning. On holidays applications will be made and/or replies communicated on the next business day.
Foreign currencies provided in response to applications will be delivered on the day on which the reply is communicated.
Banks to which foreign exchange has been provided by the Central Bank of China may be requested by the latter to furnish a statement of the disposition of such exchange.
This procedure shall come into effect upon announcement by the Ministry of Finance.”

  1. Not printed.