893.5151/935: Telegram

The Chargé in China (Atcheson) to the Secretary of State

1013. For Secretary [of] Treasury only from Adler. TF–134. Section 1. Re my TF–128, June 9, TF–132, June 14, and TF–133, [Page 460] June 21. Yesterday evening Dr. Kung informed me that he had instructed Hsi Te-mou to approach you on question of revising the 1944 [1941] Agreement and to give the following [reasons] for revision:

So many changes have occurred since 1941 that the 1941 Agreement is now out of date.
The Board as instituted by the 1941 Agreement will not fit into the international monetary set-up contemplated by current monetary negotiations in Washington and Dr. Kung sees No. 2 as the larger problem to be contemplated by the 1941 Agreement.
The renewal of 1941 Sino-American Agreement would also involve renewal of 1941 Sino-British Agreement.

Dr. Kung added that he wished the Board to continue to function but that he felt that Agreement should be revised in the light of the changed situation. Thus at the time of 1941 Agreement it was not contemplated that Board would function as an exchange control organization and yet exchange control has turned out to be the main sphere of operations.

Section 2. In this second conversation Dr. Kung mentioned that Dr. Soong has informed Generalissimo that the President had recently pointed out to Dr. Soong that Chinese inflation had reached the vicious stage and that the President has asked him what the Chinese Government was doing about it.

As a result of the President’s observations, the Generalissimo discussed with Kung possible steps to counteract the inflation. Generalissimo raised the possibility of China’s buying U. S. dollars 300 million of gold from the Treasury with the unused portion of the American U. S. dollars one-half billion loan84 and of selling this gold to Chinese public. Kung informed me that he had told the Generalissimo that U. S. dollars 300 million of gold was too much and that China should ask for U. S. dollars 200 million. He was therefore asking me to sound you out on feasibility of your selling U. S. dollars 200 million of gold to China, China to purchase the gold out of unused portion of the U. S. dollars one-half billion loan and the gold to be gradually transported to China and sold to the Chinese public.

Kung said that from viewpoint of Chinese Government sale of gold to the public had several advantages over sale of savings certificates:

The demand for savings certificates was limited to comparatively small class of merchants wishing to accumulate foreign exchange to finance imports from the U. S. The demand for gold would be much broader in China where there has been traditionally a demand for precious metals for hoarding (incidentally Kung mentioned that he intended terminating sale of savings certificates in near future and [Page 461] that total amount of savings certificates sold was little over U. S. dollars 40 million).
While the Government had to sell savings certificates at official rate of 20 to 1 it could sell gold at the free market rate which is now between CN dollars 8 and 9,000 per ounce and thus absorb more fapi for same U. S. dollar investment.
On the other [one?] hand the U. S. has a large amount of gold and on the other China will need more gold to subscribe her quota to the contemplated international monetary organization and she will be able to use such gold as is not bought internally for this purpose.

  1. For correspondence on this subject, see Foreign Relations, 1942, China, pp. 419 ff.; for text of agreement signed March 21, 1942, see Department of State Bulletin, March 28, 1942, p. 263, or United States Relations With China, p. 510.