893.516/726: Telegram

The Consul General at Shanghai ( Lockhart ) to the Secretary of State

17. Reference Department’s 688, December 31, 7 p.m.,91 new central reserve bank.

1.
Heads of National City Bank, Chase Bank and the American Express Company state that recently verbal agreement was reached between local American and British banks that they would have nothing to do with the new bank or currency to be issued by it and that none of these banks contemplates opening accounts in the new currency. It is felt by British and American bankers that the new currency will, for some time at least, experience difficulties because it will be competing against both Japanese military scrip and Chinese national currency. However, on the basis of experience with the Federal Reserve Bank currency in North China and with military yen scrip in the east Central China region, despite their attitude toward these currencies, foreign banking circles regard it as inevitable [Page 596] that the new currency in time will develop a position for itself and that eventually they may be obliged to make adjustments to meet changed circumstances.
2.
According to the Commercial Counselor of the British Embassy, British attitude remains unchanged. He stated that it was his [belief?] British banks will have nothing to do with the new bank or its currency and confirmed that agreement to adopt a common attitude was reached at a recent meeting of the local General Exchange Bankers Association.
3.
As to the Chinese banks, they were instructed by the Chungking authorities about December 21, 1940 not to accept or to deal in any other currency, such action being placed in the category of treason. It is the will and desire of the local Chinese banks to observe these instructions but they may be subject to some definite compulsion and terroristic pressure. It is pointed out especially that the Chinese Courts in the French Concession have been given over to the Nanking regime’s control and that Chinese in that concession may for the same reason be obliged to face a decision of these courts making refusal to accept the new notes punishable. The concession authorities may also be prevailed upon to accept the new notes as legal tender for tax payments as was done in the British Concession at Tientsin. Chinese banks are skeptical of the ability of the authorities of the International Settlement long to resist similar pressure from Nanking, especially if backed by the Japanese.
4.
The leading Chinese commercial bankers for some time past have had plans of their own for meeting the anticipated menace as follows: (firstly) to endeavor to placate the Nanking authorities by making deposits of nominal amounts with the new Central Reserve Bank as was done in North China; (secondly) if further pressure of circumstances force it, to open accounts for depositors in the new currency; (thirdly) if the pressure is too great and if these banks are confronted with demands for large deposits or for subscriptions to shares of the new bank or to loan issues of the Nanking regime, they are prepared to close their banks.
5.
The local Chinese banks have been pessimistic as to the ultimate outlook for fapi in the Shanghai region, believing that the new currency will ultimately succeed, especially if the Sino-Japanese conflict continues for a further long period as seems likely. But in view of announcements of an American fund for stabilization, they now seem to believe that the Chungking authorities at least for the present, if necessary, will support the fapi on the Shanghai market. Prior to the Washington announcements, they were expecting drastic action, even with Chinese abandonment of stabilization efforts at the time of launching of the new bank and its currency.
[Page 597]

See also my telegram No. 14 January 4 [6] and despatch No. 85 of December 9, 194092 re Chinese currency situation.

Sent to the Department. Repeated to Peiping and Chungking. Code text by air mail to Tokyo and Nanking.

Lockhart