893.5151/905
Memorandum by the Assistant Chief of the Financial Division (Luthringer)
It would appear that Dr. Beech98 believes that charitable remittances to China should be made at the black market rather than the official rates. I doubt that he would get very far with either the Treasury or the Chinese Ministry of Finance with any such argument.
Telegrams from China over the past few months indicate that the present official rate of approximately 20 yuan to the dollar overvalues the yuan by at least 100% and possibly by 200 or 300%. Naturally this is a very unhappy state of affairs for foreigners in China. The situation came first to FD’s attention in a telegram to the [Page 552] Secretary of the Treasury from Currie, dated July 31, 1942, in which Currie stated that he had indicated informally to Dr. Kung the “growing resentment of our diplomatic and military and charitable organizations over declining purchasing power of United States dollar in China.” Currie raised the question of leaving the official rate untouched but giving a special rate for special purposes and suggested to the Secretary of the Treasury that he make inquiry of Adler* what if anything was being considered. Treasury requested Adler for a report and since early in August there have been a number of interchanges of telegrams on the subject. Adler has indicated that a rate of 40 yuan to the dollar would “very roughly” approximate the purchasing power of the United States dollar in China to that of a year ago. Adler has remarked that both the United States Government officials and missionaries have found that their living expenses doubled.
Apparently Adler has found in conversations with Kung that the Chinese Government is strongly opposed to special rates of exchange as suggested by Currie. Kung is also skeptical of the desirability of a substantial reduction in the official rate. Adler has reported that Kung prefers an outright subsidy to the United States army in China to the institution of a special rate and was reluctant to consider any concessions other than continued winking at black market sales of U. S. currency notes. Apparently such sales of notes are largely by army personnel.
It would appear from the foregoing that the plight of the missionaries and charitable organizations is bound up with major Chinese financial questions such as the proper official rate for the yuan, control of black market operations, etc., which are currently being discussed between the Chinese Treasury and our own Treasury. Mr. Friedman of the Treasury informs me that it is his impression that the Chinese are relatively indifferent to the plight of the charitable organizations. It would appear to FD somewhat dubious that the plight of such organizations should be made a controlling factor in the situation. A decision to devalue the yuan further is a complicated question which presumably must be decided on broader grounds. Kung apparently feels that since there is so little trade the psychological ill effects of devaluation of the yuan or the institution of a broad system of special rates may well offset the advantages of further devaluation.
FD believes that if RC99 perceives no objection a copy of the attached file might prove of interest to the Treasury Department.