Memorandum by Mr. Paul F. McGuire, of the Office of the Adviser on International Economic Affairs, to the Adviser on International Economic Affairs (Feis)

Mr. Feis: I talked to Mr. Friedman at Treasury and he said that the Chinese have not yet submitted specific proposals for revision of the 1941 “Stabilization Agreement” in writing. Chinese representatives submitted some proposals orally to Harry White, in Friedman’s presence. Friedman assured me that the proposed changes were on “minor points”, e. g. giving the right of termination to both parties etc. Contrary to Mr. Stanton’s report on Mr. White’s statement during the conversation of October 6, to the effect that “the most important proposal made by the Chinese was that the 1941 rate of exchange …92 should continue to govern the revised agreement,” Mr. Friedman said that it was his impression that the Chinese did not discuss exchange rates specifically, though probably their silence on this point implied that they did not contemplate any change in the 1941 rate.

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Until the Chinese submit written proposals, they can hardly be said to be actively interested in renewal, and this Government probably need not feel called upon to take the initiative. Due to China’s present trade isolation, the stabilization board has been inactive, and a debate over exchange rates at this time would be highly academic. It would seem advisable to wait until the need for stabilization operations arises, and then draw up a new arrangement meeting the requirements of the situation. Arrangements for dollar loans and gold sales are more appropriate means for meeting China’s present financial needs, while the existence of an exchange stabilization arrangement merely gives a false appearance of recognition and support to the unrealistic official exchange rate established by the Central Government, and handicaps our negotiations for reciprocal lend-lease and fairer conversion rates on diplomatic salaries and charitable remittances.93

  1. Omission indicated in the original.
  2. Marginal notation by Mr. Feis with respect to the last sentence: “Yes. H. F.”