Foreign Relations of the United States Diplomatic Papers, 1939, The Far East, Volume III

893.516/651

The Ambassador in the United Kingdom (Kennedy) to the Secretary of State

No. 3296

London, September 4, 1939.
[Received September 19.]

Sir: I have the honor to refer to the Department’s telegraphic instruction No. 479, July [June] 23, 7 p.m. regarding the question of cooperation between British and American banks in China and to transmit herewith a copy of a Foreign Office memorandum which was received by the Embassy on September 1, 1939.

It will be recalled as regards the explanation given by the Foreign Office in paragraph numbered 3 of its memorandum that the British Treasury’s explanation reported in the Embassy’s 924, June 30, 10 p.m. was countered by the Department’s instruction No. 512 [510] of July 7, 7 p.m. However, in all likelihood the lesson has been learned.

Respectfully yours,

For the Ambassador:

Herschel V. Johnson

Counselor of Embassy

[Enclosure]

The British Foreign Office to the American Embassy

Question of Cooperation Between British and American Banks in China

On the 27th June Mr. Herschel Johnson made an oral and informal communication to the effect that in the following three instances British banks did not seem to have acted in conformity with the spirit of cooperation which His Majesty’s Government desired to promote between foreign banks in China:—

1. The manner in which the new Chinese exchange stabilisation policy was put into effect on 7th June by the Stabilisation Committee, on which two British banks were represented, had created an unfortunate impression upon the United States banks, which had been endeavouring to cooperate with the exchange control. The United States banks did not quarrel with the decision for a change in the exchange policy, but they learned of it only when one of the foreign banks applied to the Control and was told that no exchange was being sold.

2. Early in March British banks in North China announced their attitude in regard to trade and exchange control measures and then, without having first consulted United States banks, tried to bring pressure to bear on the latter to adopt the same attitude.

3. At Shanghai, notwithstanding the promise of the Manager of the Chartered Bank that British banks would consult United States banks with a view to maintaining a common policy regarding the acceptance of Hua Hsing notes, United States banks were not even informed of the decision of British banks to have nothing to do with the new banks or its notes until the decision became known to the customers of the British banks on the 1st May.

2. The Hong Kong Bank and the Chartered Bank have informed His Majesty’s Government that they are always most anxious to cooperate with United States banks.

3. The first point has already been discussed between Mr. Butter-worth and the Treasury, and it is hoped that the Embassy are satisfied with the explanations given.

4. As regards the second point, in view of the banks’ desire to cooperate as fully as possible, there is no doubt that they regret as much as do His Majesty’s Government that any premature announcement should have been made in such a way as to embarrass the American banks. We had understood that there was from the first very full discussion between the foreign bankers. It is of course true that the British banks were very firmly convinced that non-cooperation with the trade and exchange control measures was the only possible policy in view of their pledged support for the Chinese national currency, and of the existence of King’s Regulations making Fapi the only legal tender. When, therefore, the Manager of the National City Bank in Tientsin appeared disposed to adopt an attitude of cooperation with the Federal Reserve Bank, his British colleagues did their best to dissuade him.

5. As regards the third point, the British banks felt for the same reasons as had applied in the North that there could be no question of cooperation with the Hua Hsing Bank. There seems, however, to have been some misunderstanding, for the Manager of the Chartered Bank states that he informed Mr. MacKay⁹⁶ of this attitude, and that Mr. MacKay thereupon suggested a conference of the foreign banks. The Manager of the Hong Kong Bank is understood to have opposed this because he felt that British banks could not possibly adopt any other policy.

6. It seems that it is hardly correct to say that the decision of the British banks became known to their customers on the 1st May. No definite announcement was necessary as no notes of the new banks were offered to the British banks nor were they in circulation at that date.

96. Of the National City Bank of New York at Shanghai.