The Secretary of the Treasury (Morgenthau) to the Secretary of State

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


H. Morgenthau, Jr.

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.

[Page 427]

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.

H. Morgenthau, Jr.
  1. See telegram No. 911, July 16, 9 p.m., to the Chargé in China, p. 428.