Memorandum of Conversation, by the Assistant Chief of the Division of Far Eastern Affairs (Stanton)87

Participants: Mr. H. D. White, Assistant to the Secretary of the Treasury
Mr. Friedman, Treasury Department
Mr. Taylor, Treasury Department
Mr. Ballantine, FE
Mr. Stanton, FE

At a meeting called by the Treasury Department on October 6, Mr. White brought up the question of the renewal with China of the Stabilization Agreement of 1941.

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Mr. White stated that the Chinese Government about two months ago had indicated through Dr. TV V. Soong, Minister of Foreign Affairs, who was in Washington at the time, a desire to revise the Stabilization Agreement of 1941 which has expired. About three weeks ago the Chinese had finally submitted specific proposals indicating the manner in which they desire the agreement revised. The most important proposal made by the Chinese was that the 1941 rate of exchange between Chinese yuan and U. S. currency should continue to govern the revised agreement. Mr. White stated that the Treasury which was responsible to Congress for the utilization of the American portion of the Stabilization Fund, amounting to $50,000,000, was not prepared to conclude an agreement on the basis of the 1941 rate of exchange which at the present time has little relation to the actual value of Chinese currency. He remarked that as we all knew Chinese currency had depreciated rapidly during the past year. Mr. White said that the Treasury was therefore inclined to “stall” and to indicate to the Chinese merely that this question was under consideration. Mr. White said the Treasury desired to know, however, whether in the opinion of the State Department there were any important political reasons or considerations which would make it inadvisable for the Treasury to pursue the policy indicated.

Mr. Ballantine inquired what economic issues were involved in the renewal of the agreement on the basis of the 1941 rate of exchange. Mr. White replied that the Treasury felt renewal on such a basis was, so far as the United States was concerned, economically and financially unsound and that the Treasury did not believe further appropriations for this purpose on the basis of the 1941 rate would receive Congressional approval.

There ensued some discussion in regard to the possible connection between this matter and the conclusion of a reverse Lend-Lease agreement88 with the Chinese. Mr. White indicated that the absence of a stabilization agreement with the Chinese Government, fixing a specific rate of exchange between Chinese yuan and U. S. currency, would eliminate certain technical difficulties which would otherwise confront the Treasury in a reverse Lend-Lease agreement such as contemplated. Mr. White said he thought that the Treasury’s lack of interest in a renewal of the Stabilization Agreement on the old basis might cause the Chinese Government to take favorable action in regard to reverse Lend-Lease. He also remarked that in the absence of a stabilization agreement fixing the rate of exchange between Chinese yuan and U. S. currency, there would be no legal obligations, in so far as our official personnel in China was concerned, to refrain from use of the “black market” if they should choose to do so.

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Mr. Ballantine stated that he would bring this matter to the attention of interested officers of the Department and that he would expect to communicate informally to Mr. White our reactions to the Treasury’s proposed course as soon as possible. Mr. White said Treasury would of course keep the Department fully informed of any developments.

  1. Initialed by the Chief of the Division (Ballantine).
  2. For correspondence on this subject, see pp. 515 ff.