893.51/7506: Telegram
The Secretary of State to the Ambassador in China (Gauss)
638. For Adler from Secretary Morgenthau. Your cable of June 30, 1942, No. TF–46,79 regarding 1937 arrangement.
Please advise Dr. Kung that the Treasury is glad to cooperate with him in liquidating the debt owed by the Central Bank of China to the U. S. Stabilization Fund amounting to approximately $19 million. The Treasury fully appreciates and understands Dr. Kung’s desire that China have earmarked gold in the United States as a symbol of goodwill between the Ministry of Finance and the Treasury.
Since the 1937 arrangement and the 1942 financial aid agreement stem from different statutory provisions, and in order that the record will be unquestionable that the 1937 arrangement will have been liquidated without recourse to other sources of financial aid, it is suggested that China use the gold now being held as collateral in the Federal Reserve Bank to repurchase the outstanding yuan purchased by the United States under the 1937 arrangement amounting to approximately $19 million. The gold being held as collateral in the Federal Reserve Bank, New York, is more than sufficient to repurchase the outstanding yuan. If China agrees to repurchase the outstanding yuan with the gold being held as collateral, there will be a balance of a small amount of gold plus a very small amount of dollars. The Treasury believes that this procedure is definitely in the interests of China from the point of view of maintaining China’s splendid record.
The Treasury is, of course, ready to consider sympathetically selling an equivalent amount of gold to China for dollars made available to China under the $500,000,000 financial aid agreement.