893.51/7668: Telegram

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

223. Your 137, January 26, 9 a.m. For Adler from Secretary of Treasury.18 Please transmit the following message to Dr. Kung:

Treasury has given careful consideration to his proposal but regrets that it is not in a position to recommend the modification of its controls so as to leave the U. S. dollar proceeds of such certificates, etc., when paid to the account of a blocked Chinese national, free when maturity is reached.

Freezing controls are a fundamental instrument of this Nation’s war effort and security measures. Treasury trusts that he would appreciate that the present proposal would impair the entire control. It would, for example, involve considerable danger that free dollars might be placed at the disposal of enemy agents and other undesirables, [Page 411] with practical injuries to our common war effort, which both the United States and China wish to avoid. Neither the listing of the original purchasers nor the reporting requirement here would constitute adequate safeguards against these dangers. Moreover, the present proposal would raise many other complex problems regarding U. S. control over funds of all blocked countries.

Since our Foreign Funds Control laws were in existence at the time when the certificates, etc., were sold it is to be expected that the purchasers of such certificates, etc. appreciated that there was no commitment on the part of the United States to exempt from its Foreign Funds Control laws the U. S. dollar proceeds which the purchasers would receive at the time of maturity. It is to be assumed that the purchasers of such certificates, etc. understood that an undertaking to this effect could only be given by the United States. Since the Government of China is fully prepared to make payment on these certificates, etc. as contracted, there would seem to be no question of the Government of China’s failing to meet its obligations.

The individuals holding the blocked U. S. dollar proceeds of such certificates, etc. would, of course, be entitled to all benefits of our existing general licenses, and, where general licenses are not applicable, specific licenses for the release of such blocked funds could be applied for through the ordinary channels. The Treasury would, of course, give the most favorable consideration to requests for specific licenses for legitimate transactions and, moreover, in accordance with the Treasury’s past practice, the Treasury would be glad to consult with the Stabilization Board prior to the releasing of any of these blocked assets if the Stabilization Board so desired. China may, of course, assure purchasers of these obligations that they may count on the traditional fairness of this Government in dealing with any such assets. [Morgenthau.]

  1. This telegram was drafted by the Treasury Department in consultation with officers of the Department of State.