893.51/7713: Telegram
The Ambassador in China (Gauss) to the Secretary of State
[Received 9:40 p.m.]
1800. A prominent informed Chinese banker tells us in confidence that Kung is now considering not selling to the public the gold to be received from the U. S. but retaining it in the possession of the Chinese Government to constitute a factor in stabilizing public confidence in the currency. The informant states his private opinion that in any case the sending of gold to China will not affect materially the continuing inflationary rise because, even if fapi in appreciable amounts is drawn in through its sale, the continuing budgetary deficiency is the primary cause of the inflationary spiral; that to make successful any program of sale of gold to the public it would be necessary to cut the bars into small pieces and probably to make them into ornaments such as rings in order to put gold within the reach of the majority of prospective individual purchasers; and that the Japs will offer a price higher than the Free China price and most of the gold sold will inevitably flow into the occupied areas and into Jap hands.
The informant said also that the only effect which the announced program in regard to gold had so far had is that some commodity prices have lowered in terms of gold but not in terms of the currency; and that it was his opinion that the only means of materially effecting the price situation would be, if that were possible, to announce that consumers goods, notably piece goods, were being brought into China from India—a step which would force hoarders to put on the market their stocks which probably amount to a year’s ordinary supply.