893.516/583: Telegram

The Counselor of Embassy in China ( Lockhart ) to the Secretary of State

103. Reference Chungking’s 78, February 6, 3 p.m.,96 and Department’s 62 to Shanghai, February 24, 3 p.m.97

1.
An officer of the Japanese Embassy stated today that a new bank was being planned for the parts of Central China under the control of the Reformed Government. He said that the authorities had foreseen the necessity of such a bank for some little time and although the date of inauguration was not predictable it was certain that such a bank would be opened. He said that the main question now being studied was the matter of reserves for that bank.
2.
He stated further the new bank would probably issue currency at the fixed rate of exchange of 8 pence per United States dollar. When queried as to how the proposed Central China dollar would affect the Federal Reserve Bank dollar, which is to be pegged at 1 shilling 2 pence per United States dollar, he replied that certain control measures would have to be instituted and explained that for all practical purposes (imports, exports, transfers of currency, et cetera) North and Central China would be considered as separate entities. He intimated further that a plan for the retirement of national currency circulating in Central China was under consideration but stated that he was not acquainted with the technical details pertaining to the organization of the new bank.
3.
It would appear that the pegging of the new Central China currency if and when issued at 8 pence is a more realistic view of the financial situation in China by the Japanese than the pegging of the Federal Reserve Bank currency at 1 shilling 2 pence. The Japanese official mentioned above seemed to have this act [fact?] in mind when he stated that it will be difficult to maintain the higher rate of Federal Reserve Bank currency without “control measures” whereas the lower rate of the new Central China currency will in no way hinder trade.

Repeated to Chungking and Shanghai; code text by mail to Tokyo.

Lockhart
  1. Post, p. 647.
  2. Not printed.