Foreign Relations of the United States: Diplomatic Papers, 1942, China

893.5151/900: Telegram

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

Chungking, August 18, 1942—9 a.m.
[Received 8 p.m.]

947. TF–53 to Secretary of the Treasury from Adler regarding your 700 of August 5.

(a) Forty fapi to one United States dollar is the rate of exchange which would roughly—very roughly—approximate the purchasing power of the United States dollar in China to that of a year ago. While Chungking wholesale and retail price indices have just about trebled in the last 12 months, neither is a satisfactory measure of the precise amplitude of price movements in general, let alone of those price movements most relevant for assessing changes in the cost of living of foreigners. It is the consensus of opinion among Americans here that their money goes about half as far as it did a year ago. Thus both United States Government officials and missionaries find their living expenses doubled, while charitable organizations spending twice as much money as they did last year find it hardly goes any further. (Americans affected include about 30 Government officials, 1000 soldiers, 500 missionaries, et cetera, and a handful of journalists and businessmen.)

A precise computation of purchasing power parity would have little point in view of the nature of Chinese price data and of the absence of foreign trade.

(b) The differences between the purchasing power of the United States dollar in Chungking and in other areas where Americans reside are not particularly significant.

(c) There has been some talk of reciprocal Lend-Lease or some equivalent measures to meet the living expenses of the United States Army in China but so far it has been only talk.

(d) Dr. Currie’s proposal is the most reasonable in the circumstances:

1. The minimum readjustment of the official rate of exchange such as would bring the purchasing power of the United States dollar back to or near its level of a year ago would have to be so radical as to seriously undermine internal confidence in the fapi at a time when such confidence is already none too strong. Such a readjustment would be the more indefensible in the absence of foreign trade.

2. Reciprocal Lend-Lease would of course help United States Army but would leave other Americans unaffected.

(e) I gather from informal conversation with Dr. Kung that the Chinese Government is strongly opposed to special rates of exchange. Nevertheless no harm would ensue and some good might [come?] from raising the question officially as it would probably hasten the Chinese Government’s adopting some form of reciprocal Lend-Lease in addition to giving more force to the next representation on the question of exchange rate or rates. [Adler.]

Gauss