740.0011 Pacific War/3082

Memorandum of Conversation, by Mr. Horace H. Smith of the Division of Far Eastern Affairs

Under instructions from Dr. Herbert Feis, Economic Adviser, I called upon General Carter, Chief Fiscal Officer of the War Department, at his office in the Pentagon Building (Room 4–E-448) at 5:30 p.m. today to discuss informally an urgent problem which he had brought up with Dr. Feis regarding the exchange rate at which American soldiers in China were paid and a proposal by General Carter that the problem be solved through “reverse Lend-Lease”.

General Carter explained that he had recently had several urgent telegrams from General Stilwell on the subject. There were two related problems involved: one concerning the purchase in China of vital supplies for the use of our armed forces and the other concerning the payment of our Army officers and men in China.

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He said that General Stilwell in one telegram had requested authorization to ship into China from India $400,000 in United States currency in order to facilitate the purchase of supplies. General Carter could not grant such requests without violating our Government’s arrangements with regard to the support of the official rate of exchange. Yet there was urgent need for the establishment of a more satisfactory method of purchasing supplies in China.

The other problem had been temporarily solved so far as Army officers stationed in China were concerned by per diem allowances of $15 per day, but even this amount was unsatisfactory.

General Carter pointed out that these problems, pressing as they now are, would immediately become vital if we were to expand our forces in China to the number that may logically be required before the end of hostilities.

He referred to the fiscal arrangements made in connection with the current North African campaign in which the troops are being paid in special “gold seal” United States currency notes which can be exchanged only at an official rate of 75 francs per dollar. After one year these notes are to be withdrawn and payments made to the troops in francs.

General Carter suggested that through reverse Lend-Lease the Chinese Government might supply either in kind or in advances of the Chinese currency required to purchase them the supplies needed by our armed forces and the elements now provided by per diem allowances to officers.

He suggested that an index might be worked out by the Embassy at Chungking upon which estimates could be made each month of the amount required in terms of Chinese currency to supply each officer with light, heat, quarters (including necessary servants) and food. This amount would not be very large and would replace the per diem now paid. General Carter suggested that any portion of an officer’s pay he desired to change into Chinese currency should be exchanged at the official rate. He suggested that a similar arrangement should be made with regard to the purchase of supplies.

I replied that I would report General Carter’s remarks to Dr. Feis and to the Ambassador in Chungking and, as arranged by Dr. Feis with General Carter, to Mr. Harry White7 in the Treasury Department. I agreed with General Carter that a possible solution of the Army’s problems in this connection might lie in the negotiation of a reciprocal Lend-Lease agreement and the utilization of “reverse Lend-Lease”.

Horace H. Smith
  1. Assistant to the Secretary of the Treasury.