893.51/6952: Telegram
The Ambassador in China (Johnson) to the Secretary of State
[Received August 4—7:53 a.m.]
485. My 445, July 18, 11 a.m.
1. The following is a summary of views on the Chinese currency situation expressed to McHugh by Rogers during the last few days.
The practical exhaustion of the British Stabilization Fund has been brought about to a considerable extent by the Chinese Government itself which has not only failed to prevent flow of Chinese currency into Shanghai but has permitted large purchases of foreign exchange on behalf of the Government and of men connected therewith as well as of private persons.
Yet the Government is now attributing the depreciation of the national currency to unwarranted exhaustion of the fund and to the adoption of a method permitting Japanese raids on it (see concluding paragraphs of General Chiang’s statement of July 24 reported in my 458, July 25, 9 a.m.86). The Chinese Government has further handicapped successful operation of the Fund by depriving it of normal support from postal savings remittances, customs receipts and remittances from overseas Chinese which should have been available for exchange operations but were diverted to other uses.
2. The policy now adopted by the Chinese Government as sketched by Chiang is almost certain to produce price inflation and popular panic within 3 months with possible serious political results.
[Page 703]3. T. V. Soong is bitter over the lack of cooperation from Kung in measures of the support of the currency and threatens to sever all connection with the Chinese Government. On the other hand there is similar dissatisfaction with the Minister of Finance here in Chungking and if he were to vacate the post Soong would be willing to assume office and try to salvage the situation but in view of Chiang’s speech the change is not likely.
4. There are however officials influential in the Chinese Government who have an intelligent understanding of currency problems who it is hoped will assert and it is highly desirable to consider what measures can usefully be taken by foreign governments to support the currency. Informant feels that the British Government was not only wise but generous in voting the Stabilization Fund without security and at low interest. While he does not ignore the great assistance that has been given by the American Government he points out that the Chinese have been seriously hampered by the requirement since January 1 that proceeds from silver sales must be expended for American goods and observes by way of contrast that gold deposits received from London do not have to be returned in the form of commodities.
[5.?] In regard to the pledge of tung oil in return for the $25,000,000 credit he observes that the transaction can hardly be regarded as a measure purely designed to assist China because of the high interest, the fact that the amounts of oil stipulated for are double what would be required to liquidate the credit and the limitation of proceeds to the purchase of non-military goods which deprives China of possible use of these assets elsewhere for war munitions. He suggests ample protection would be afforded the American Government if from the proceeds of wood oil shipments a reserve fund of $5,000,000 were established to provide against price fluctuations and if the balance of the oil were released to the Chinese Government.
Informant states that with difficulty he convinced the French Government in January that the British Government was not seeking profit from instituting the proposed Stabilization Fund and persuaded that Government to contribute to it but that at the last moment the French withdrew.
6. The informant, actuated evidently by loyalty to the Chinese cause and his conviction that enormous interests are at stake, urges in the strongest terms that foreign governments take immediate and effective steps to assist in maintaining improvements [which?] should be made in the method of Chinese cooperation. Despatch follows by air mail.87
Repeated to Shanghai.