Memorandum by the Assistant Chief of the Financial Division (Luthringer) to the Acting Chief of the Foreign Funds Control Division (Meltzer)

Mr. Meltzer: Attached is a copy of a Chinese memorandum14 which I mentioned to you the other day. The memorandum appears without title or initials because last February when people were scratching their heads trying to dope out the most effective way of aiding Chinese internal finances from the outside someone had the idea of submission of anonymous suggestions.

The idea of using dollars to secure savings certificates and bonds originated, as I recall, with the Chinese. Unfortunately when it came to implementing the idea the Chinese characteristically barged [Page 409] ahead without asking our Treasury or anyone else for advice or suggestions. Later information has shown that one reason why the bonds particularly, and to some extent savings certificates, have not sold well is because the Chinese suspect that their own Government will in some way bilk them of the dollar collateral.

You will note that to the extent that the attached memoranda circulated in the Department at least no one should have had any illusions as to the kind of handsome gift which operations of this character would provide for wealthy Chinese speculators. I think the same was appreciated by the Treasury, but the Treasury at that time was jittery about China continuing in the war and was willing to give the Chinese almost anything they asked for.

Please note on page 2 of the memorandum of December 31, 194115 the citation of Mr. Arthur Young’s16 opinion that the Chinese public might be hesitant about buying foreign currency obligations because of our freezing regulations. This would indicate that the Chinese Government should always have appreciated that the dollars back of the savings certificates would be blocked unless we made an exception to our freezing regulations. For your information Mr. Young is an Adviser of the Chinese Government.

If the Chinese Government is insistent that the certificates be paid off in free dollars it seems to me that they have a very strong talking point in that the Treasury has always played up the fact that China was frozen in the first instance at China’s request and in order to assist China to meet its financial problems. In other words, had not China itself requested it I suppose that there is a very good chance that now unoccupied China might be unblocked or enjoying a general license as liberal as that of the Russians. In the light of these considerations I think the original Treasury telegram might well have infuriated the Chinese.

  1. Document prepared in the Department of State dated February 12, 1942, Foreign Relations, 1942, China, p. 461.
  2. Annex to the document prepared in the Department of State, February 12, 1942, Foreign Relations, 1942, China, p. 461.
  3. American adviser to the Chinese Ministry of Finance.