803.5151/893: Telegram

The Ambassador in China (Gauss) to the Secretary of State

427. From Adler for Fox, care Secretary of the Treasury.

“TF–28. 1. Board received official communication from Minister of Finance asking for reduction in exchange rate late on the 14th. Board submitted memorandum to him on the 16th pointing out it agreed in principle to proposed change but adding:

It hoped reduction would in fact contribute to increasing sales of saving certificates;
unless appropriate counter measures are taken, reduction might be exploited by holders of blocked funds to move into saving certificates without any exchange [, to] retain certificates and with no resultant advantage to China;
any further reduction or reductions in rate for purpose of stimulating sales of Government securities would do more harm than good.

Dr. Kung gave verbal assent to above and board will act on receiving written assent.

2. Board intends to make new official rates 51/16 United States cents and 31/16 pence at which cross rate would be 1 pound sterling equals United States dollars 4.029, and new selling rates 5 United States cents and 3 pence. Central Bank which objects to selling dollars for sterling below 3 pence because of unfavorable psychological impression it would make indicates new sterling margin may not cover telegraphic expenses. Board prefers above official rates with understanding if necessary with Central Bank that Board would make up any loss in my cable expenses to alternative of official rates of 53/32 United States cents and 31/16 pence, which with selling rate of 5 cents would involve a margin of 1.84% on United States dollar transactions.

3. Re TF–25 of April 8 [9],47 (5), Board has received additional confirmation of destruction of its records from another employee just arrived from Hong Kong. He adds complete set of Board’s minutes hidden in safe place before fall of Hong Kong. He smuggled out in form of wrapping paper balance sheet of Board’s operations up to December 6 which Frese48 completed on December 14.

4. With resumption of air mail communications, sending weekly reports to you and Dr. White.[”]49

  1. Telegram No. 378, April 9, noon, not printed.
  2. Walter F. Frese, American assistant to Mr. Fox and to William H. Taylor, alternate American member of the Chinese Stabilization Board.
  3. Harry Dexter White, assistant to the Secretary of the Treasury (Morgenthau).