Memorandum, by the Chief of the Division of Far Eastern Affairs (Ballantine)

Reference the underlying memorandum89 of conversation between officers of the Department and Mr. Harry D. White and other officers of the Treasury Department in regard to renewal of the Stabilization Agreement with the Chinese Government.

FE perceives no objection to Treasury following the course proposed by Mr. White in regard to this matter for the following reasons:

Information received by the Department from Chungking would indicate that this matter is not one of pressing concern to the Chinese authorities. The fact that the Chinese were slow in taking any action when the agreement expired, that the Chinese requested a revision of the agreement on the basis of the 1941 rate of exchange which they know is unrealistic and not likely to be viewed favorably by the Treasury, would tend to confirm the impression that this matter is not of serious concern to the Chinese Government. It is not believed, therefore, that failure of the Treasury Department to proceed immediately with negotiations regarding this matter would have any adverse political repercussions or affect the very friendly relations now existing between China and the United States. Our military and material aid to China which is slowly increasing will in no way be affected.
In as much as the Stabilization Agreement of 1941 merely stabilized and fixed the rate of exchange between Chinese yuan and U. S. currency, it had little effect on the inflationary situation which has steadily deteriorated. It is believed that the conclusion of a revised or new stabilization agreement would have equally little effect on the present financial situation in Free China.
FE is inclined to believe that a delay on the part of the Treasury in taking up this matter with the Chinese authorities will perhaps induce them to give favorable consideration to the conclusion of a reverse Lend-Lease agreement. The conclusion of a reverse Lend-Lease agreement is all the more important to our military and official personnel in China, whose difficulties have been increasing, in view of [Page 471] the disinclination of the Chinese, as evidenced by their recent proposals to the Treasury? to readjust the rate of exchange and place it on a more realistic basis.

FE suggests that Treasury be informally advised that the Department perceives no objection to the course proposed by Treasury in handling this matter.

J[oseph] W. B[allantine]
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