893.5151/428: Telegram

The Ambassador in Japan (Grew) to the Secretary of State

207. 1. The British Ambassador12 called this morning accompanied by Hall-Patch13 and stated that his Government was much concerned over the fact that in order to support the new currency recently established in North China some stringent form of exchange control or exchange rationing will have to be introduced. Craigie stated that he had been instructed, after consultation with his American and French colleagues and obtaining their views, to report his personal views to his Foreign Office.

2. Craigie’s personal views which he set forth to me and which he is telegraphing to his Foreign Office are as follows:

  • “Point 1. While I would deprecate joint action I feel that in view of the importance of this issue some form of approach to the Japanese Government is very desirable. While it is true that such action may not produce any, it is even more improbable that action by ourselves alone would be effective.
  • Point 2. There can be little doubt that, in order to support the new currency, some stringent form of exchange control or exchange rationing will have to be introduced. If it is to be exchange control à la Japonaise, it will in practice form a yen bloc and consequently make it almost impossible for foreign traders and bankers to secure foreign exchange and consequently to continue trading. This in turn means that equality of opportunity would disappear in North China.
  • Point 3. The Japanese Government have consistently declared their desire of maintaining the Open Door and their desire to respect foreign interests in China and to secure their cooperation in the rehabilitation and future development of the country. It is obvious that if the measures which are now being taken in North China in respect to the currency and the possible establishment of exchange control leads to discrimination against their interests, all hope of such cooperation in the future must disappear.”

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3. Craigie believes that if a system of exchange control is set up it may work out almost entirely to the advantage of the Japanese and that in order to forestall such a situation some form of concerted representations should be made to obtain assurances of equal opportunity for all. In the event that such assurances are not obtainable, Craigie believes that our respective Governments should as a second step insist upon some system of rationing of exchange which would be fair to all concerned and that in connection with a rationing system some form of international supervision should be set up such as a committee of bank representatives to be nominated by the Foreign Bankers’ Association of Tientsin.

4. I concur in Craigie’s views and I believe that some form of action other than joint action should be taken as soon as possible to prevent a situation arising under an exchange control system which would undoubtedly favor Japanese trade and close the door to equality of opportunity which the Japanese assurances to date have asserted would be maintained.

5. The matter seems to be urgent. Please instruct. If representations are made I think they should be accompanied by an aide-mémoire.

Repeated to Shanghai for Peiping and Hankow.

  1. Sir Robert L. Craigie.
  2. Financial Adviser of the British Embassy in China.