893.5151/904: Telegram
The Ambassador in China (Gauss) to the Secretary of State
Chungking, October
28, 1942—4 p.m.
[Received October 29—2:01 p.m.]
[Received October 29—2:01 p.m.]
1236. For the Secretary of the Treasury from Adler. Section 2, continuing TF–66A [66?].91 Preliminary findings.
- 1.
- China’s United States dollar in payments should total around United States 40,000,000 dollars in 1942 (all figures except if otherwise indicated in United States dollars). Her out payments should approximate $35,000,000.
- 2.
- Fapi at present exchange rate clearly overvalued. Since July 1941 prices, in Chungking have more than trebled. Rate of one fapi equals United States cents l¼-2½ would be much more equitable whether in terms of foreigners’ cost of living in China or of international prices of China’s exports and imports. But (a) China’s unsettled condition renders question of change of rate relatively less urgent from point of view of China’s internal economic position, (b) Ministry of Finance is strongly opposed to any change of official rate on above ground and on ground that it would further undermine internal confidence in fapi.
- 3.
- However special exchange rate for utilitarian purposes also has disadvantages. Difficulty is that if special rate granted for one agency [—]e. g., army—only, agencies not covered would protest against it; and if it is granted for all purposes for promulgating dollar transactions, it would have to be granted for sterling and other currency transactions too. In this eventuality, official exchange rate would become a fiction. Moreover a wide discrepancy between special rate and official rate would be liable to be injurious to internal confidence in fapi as an equivalent change in official rate.
- 4.
- It would appear therefore that if any change in rate were to be made, a change in official rate would be preferable to a special rate or rates.
But in view of situation here, it could not be originated at initiative of board. Because of undesirability both of frequent small changes in rate and of too drastic an adjustment at one stroke in view of possible adverse internal repercussions, suggest rate to aim at is 40 fapi to one United States dollar. Striking at even that rate which would still leave fapi over valued, might be difficult of attainment. [Adler.]
Gauss
- Supra. ↩