893.51/7506: Telegram

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

779. Following for the Secretary of the Treasury from Adler.

TF–46. Dr. Kung sent for me on June 29 and informed me he would like to consult you on the following question.

The Central Bank of China still owes the United States stabilization fund between United States dollars 19 to 20,000,000 of the approximately United States dollars 48,000,000 credit it received in 1937.75 This credit was fully secured by gold purchased by Dr. Kung from the Treasury on your advice in that year. He informed me that on several occasions in the past he was advised to use this gold on which he was earning no interest to liquidate in its entirety this debt on which he was paying interest. But he was and still is reluctant to part with all the gold purchased on your advice because he appreciated the spirit of your advice and regarded China’s retaining some gold on earmark in the United States as a symbol of good will between the Ministry of Finance and the Treasury. However, it is not easy at this time for the Central Bank to raise the United States dollars 19 to 20,000,000 to pay off the debt from other sources. He could, of course, use the remaining Chinese gold held in the United States [Page 528]for this purpose. But the alternative he would prefer would be for the Treasury to advance another approximately United States dollars 19,000,000 from the United States dollars 500,000,000 loan to China to enable him to clear the debt. He would appreciate learning your reaction to this proposal.

The net effect of the transaction contemplated by Dr. Kung would be that China would pay off the debt to the United States stabilization fund with the gold it now holds in the United States and would acquire an equivalent amount of gold with an advance from the United States dollars 500,000,000 loan. [Adler.]

  1. See Treasury Department press release of July 9, 1937, and memorandum of July 12 by the President of the Export-Import Bank of Washington, Foreign Relations, 1937, vol. iv, pp. 611 and 612, respectively.