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

893.5151/908: Telegram

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

Chungking, December 11, 1942—4 p.m.
[Received December 13—5:07 p.m.]

1484. For the Secretary of the Treasury from Adler.

TF–77. Re your 1125 of November 21, section 1, paragraph A, re 1125 (a).

1. Foreign Exchange Control Commission has no restrictions save that it acts only on applications from Chinese Government organizations which must receive its approval.

2. Stabilization Board regulations. Paragraph (I), amount not to exceed United States dollars 200 or pounds 50 per month, save in special cases when amount remitted per annum is limited to United States dollars 2,400 or pounds 600.

Paragraph II. Following is a list of purposes for which remittances have been permitted; traveling and living expenses abroad, support and educational expenses of family living abroad, payment of insurance premiums and loans, conversion of proceeds from sale of effects of deceased individuals, cost of medical treatment abroad for family, purchase of medicines for household use, conversion of Chinese dollars holdings of persons leaving and not returning to China up to United States dollars 400 or pounds 100 (United States dollars 500 and pounds 125 for members of armed forces) and in special cases of excess over above sums at rate of United States dollars 200 or pounds 50 per month, payment of annual dues to societies abroad, purchase of technical books for personal use, payment of debts incurred abroad, purchase of supplies by Embassies, et cetera, and personal unspecified expenses of Ministries.

III. Restriction as to persons or organizations permitted to make remittances:

[a.] Chinese Government departments or agencies are required to apply to Foreign Exchange Control Commission as are their employees with respect to personal requirements on Government business.

b. Employees of firms with offices abroad are not entitled to foreign exchange. In a few cases where such employees receive their salaries in national currency and have no other source of foreign exchange, this ruling has been waived.

c. All applicants are required to sign a statement that they undertake to sell such foreign exchange as comes into their possession in China to an appointed and/or approved bank at official rate of exchange.

All above self-explanatory.

B. Re 1125 (b).

Until outbreak of Pacific war, Chinese Government prohibited export of more than CN dollars 500 or its equivalent in foreign currency in form of currency notes plus allowance for traveling expenses. This regulation was subsequently abrogated as Chinese Government wished to encourage movement of fapi into occupied areas, and there are at present no restrictions. As there is some movement of United States dollar and Indian rupee currency into India for undesirable purposes, revival of the old regulation with respect to foreign currencies would appear to be in order.

C. Re 100,125 [1125] (c).

(1) Main centers of black market Kunming, Chungking and Kweilin, with Kunming by far the most important. Kunming has active market particularly in United States dollar notes and Indian rupees notes, to a smaller extent in United States Treasury and Indian rupees checks, to a still smaller extent in Burma rupee and Hong Kong dollar notes and in piasters. Kunming black market rates: United States dollar notes 50 to 1-rate has gone as high as 60 but only for a short time; United States Treasury checks 40 to 1; Indian rupees notes and checks 1619 to 1; Burma rupee notes 12 to 1; Hong Kong dollar notes 5 to 1 and piasters 20 to 1.

Chungking black market rates: United States dollar notes 50 to 1; United States Treasury checks 40 to 1; Indian rupee notes and checks 16 to 1; Burma rupee notes 6 to 1 and Hong Kong dollar notes 5 to 1. Kweilin black market confined to United States dollar notes and checks.

(2) Magnitude of volume of transactions.

a. It has been [estimated?] that United States soldiers in China will have sold at least United States dollar 250,000 in United States dollar notes into black market by the end of 1942 and actual sum may well be greater. It should be noted that the size of the USAF⁶ in China is increasing and that amount of United States dollar notes and Treasury checks going into black market will tend to increase with it in absence of remedial measures. In addition a small amount of United States dollar notes may have trickled into black market from visitors and journalists.

b. No estimates are available as to magnitude of transactions in United States Treasury checks and other currencies and checks. It is known, however, that sale of United States dollar notes and that trading in Indian rupee notes and checks is considerably more active than in Burma rupees, Hong Kong dollars and piasters.

c. According to a reliable source, trading in all foreign currencies in Kunming black market at the beginning of November was averaging the equivalent of one lakh of Indian rupee per week.

(3) Sources of foreign currencies.

a. United States dollar notes and Treasury checks—almost entirely United States soldiers the remainder coming from transient United States Government officials and other visitors. Each American soldier in China receives United States dollars 40–50 in notes per month (USAF makes its official purchases of supplies, et cetera, with fapi obtained at official rate).

b. Indian and Burma rupee and Hong Kong dollar notes—Chinese refugees from Burma and Hong Kong who did not sell their foreign currency holdings to Government banks.

c. Indian rupee checks—travelers and persons who keep their bank accounts in India.

d. Piasters—Yunnanese hoards.

Main beneficiaries:

(a) Chinese buying United States dollars and Indian rupees to (1) hoard in China and (2) buy goods in India either for purpose of smuggling into China or to hoard packers against rising prices there.

(b) Chinese buying Burma rupee and Hong Kong dollar notes to hoard in China.

[c?] Chinese buying piasters in dry season for purchase of goods in Indochina to be smuggled into Yunnan.

(d) Foreigners leaving China who wish to acquire United States dollars or Indian rupees against fapi they cannot convert into foreign exchange through legitimate channels.

Main category is probably (a). There is a rumor current which it has been impossible to check that some of United States dollar and Indian rupees notes sold into black markets have reached enemy hands. [Adler.]

Gauss

6. U. S. Air Force.