893.5151/946
The Secretary of the Treasury (Morgenthau) to the Secretary of State
Washington, July 15,
1943.
My Dear Cordell: I am enclosing herewith, for
your information, a copy of a memorandum I have presented to the
President dealing
[Page 426]
with the
Chinese request to purchase $200 million of gold out of the $500 million
financial aid as a means of helping to check inflation in China.
I am also enclosing a copy of cable, dated July 14, 1943, dealing with
this matter sent to the Treasury representative in China through your
Department.34
Sincerely,
[Enclosure]
Memorandum by the Secretary of the Treasury
(Morgenthau) to President
Roosevelt
On July 14, that the Treasury is prepared in principle to agree to
the Chinese request to purchase $200 million of gold out of the $500
million financial aid as a means of helping to check inflation in
China. Dr. Kung was also informed that a formal request was, of
course, necessary before any definitive decision and action could be
taken.
The Chinese government has already drawn on the Treasury to the
extent of $240 million out of the $500 million financial aid:—$200
million has been set aside as backing for Chinese Government savings
certificates and bond issues; $20 million was used to purchase gold,
and $20 million is being used for the printing of banknotes and the
purchase of relative materials. The purchase of gold with an
additional $200 million will mean that in total the Chinese will
have used $440 million out of the $500 million financial aid.
In the message to Dr. Kung, as well as in discussions with the
representatives of the Chinese Government in Washington, it has been
made clear that the Treasury is acquiescing to the Chinese proposal
because the Government of China deems that the sale of gold to the
public will aid its war effort by helping to fight inflation and
hoarding and that, therefore, the decision to purchase the gold is
primarily the responsibility of the Chinese Government. Furthermore,
the Chinese have been urged to give careful consideration to the
best ways of using the gold, particularly because of the great
costs, difficulties and dangers inherent in the use of gold as a
means of checking inflation under conditions existing in China at
present. We especially stressed the fact that the Chinese Government
will by this step be sacrificing large amounts of foreign exchange,
which could be used in the post-war period to pay for imports needed
for reconstruction and rehabilitation.
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The use of gold coins as against bullion for the purpose was
carefully considered. It was felt both by us and by the Chinese
Government that this technique for selling the gold to the public
would not be feasible in the present instance, primarily because it
would be necessary to give the gold coins a fixed monetary value,
while it is contemplated that the price of gold in terms of yuan
will change frequently and substantially as time goes on.
The suggestion was therefore made to the Chinese representatives in
Washington that the gold might be sold to the public in China in
small bars of one or two ounces in order to reach the widest
possible section of the Chinese public and such bars might have some
engraving which might suggest the United States origin of the
financial aid, if the Government of China so wished.
