800.515/719: Telegram

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

891. From Adler to Secretary of Treasury only.

TF 130. At the final meeting held June 8 of monetary experts to discuss the draft instructions to the Chinese delegation to the forthcoming preliminary discussions on international monetary cooperation in Washington, Dr. Kung announced that the Chinese delegation to the preliminary discussions will consist of Dr. P. W. Kuo, Hsi Te Mou, K. C. Lee and T. V. Soong, all “Kung” men. The meeting agreed on a Chinese plan for international monetary cooperation shortly to be submitted to Treasury and on the draft instructions to be issued to the Chinese delegation.56

The Chinese [plan] has the following new features: (1) Provision for transitional period for restoration of internal monetary stability as an essential part of the plan. (2) China’s blocked assets abroad to be free from any restrictions on abnormal war balances. (3) Determination of quota to depend on total value of imports and exports and invisible items in balance of payments and probable postwar developments in balance of payments having regard to postwar price levels, amount of money and bank credit in circulation, holdings of gold and foreign assets, and importance in world economy. Quotas of countries taking advantage of transitional period to be provisional and subject to revision. (4) Quantitative limits of members’ quotas and debit balances to be made dependent on arrangements made for relief and economic rehabilitation and for medium and long-term capital investment. (5) Provision for a preparatory committee consisting of one member each from the U.S., the U.K., Russia and China, and three members from the other United Nations.
The following points in Chinese draft plan coincide with Treasury and British plans: (1) Objects, membership, consulting with and supplying information to organization. (2) International monetary unit with gold value, gold value for member currencies, and free and dependable market for gold. (3) Exchange rates to be altered only in accord with new organization. (4) An elastic plan re members’ debit balances. (5) Abolition of exchange control as soon as feasible. (6) Authorization of continued control over capital movements. [Page 1079] (7) Monetary organization to be separate from other international economic organizations.
The Chinese draft plan favors the Treasury plan on the following points: (1) Name of organization and name of governing body. (2) Members to subscribe to international fund in gold, currency and securities; but share of quota to be paid in currency one-half and in securities one-fourth. (3) Provisions with respect to funds operation. (4) Formula for determination of quotas with important modifications. (5) Formula for voting with modification that decisions on important matters to be by two-thirds instead of three-fourths majority.
Chinese draft plan favors British plan on following points: (1) Non-redeemability of new unit in gold. (2) Monetary standard not necessarily to be bound up with gold policies of particular countries or with gold producing industry; provision for checking excessive inflationary or deflationary world-wide tendencies. (3) Formula for revision of quotas—with modifications. (4) Creditor nations’ responsibilities with respect to equilibrium in balance of payments—with modifications. Form of governing body and provision for general meeting. [Omission?] holding monetary reserves outside organization.
The following is a summary of most important points in draft instructions to Chinese delegation: (1) Delegation not authorized to commit Chinese Government. (2) Chinese plan drafted in order to help in reconciling Treasury and British plans as well as to provide for matters of particular interest to China. (3) Chinese Government feels that it is necessary to plan more concretely for transitional period of monetary rehabilitation after the war than do either the Treasury or the British plan. This of vital importance to China. (4) External aid will be needed to bridge the gap during the transitional period, though how much it is too early to say. Chinese Government has following measures in mind: (a) Foreign credits to Chinese Government to finance imports, importers when non-government and to pay national currency equivalent of imports to Chinese Government. (b) Direct sale of foreign exchange. (5) Chinese Government will not be in a position to make commitments on its exchange rate until plan for restoring internal monetary and fiscal stability adopted and partly carried out. (6) Chinese Government feels that restoration of confidence dependent to considerable extent on adoption of international plans for relief and economic rehabilitation. (7) Chinese Government stresses great importance of arrangement for international organization to provide capital for economic reconstruction and development. (8) Chinese Government strongly hopes that point 3, item 4 of Treasury plan will be made less restrictive with respect to debit [Page 1080] balances. (9) Chinese Government favors restoration of free exchange market and wishes to remove exchange restrictions when feasible without committing itself as to time. (10) Possibility of reciprocal undertakings to provide information to facilitate regulation of capital movements should be explored. (11) Chinese Government wishes Chinese blocked assets abroad which were frozen at her express wish should be promptly unfrozen after the war in accordance with a procedure to be worked out by the American, British and Chinese Governments. (12) Need is stressed for considering additional factors mentioned in paragraph 1, item (3) above in determining an adequate quota for China. (13) While Chinese interests do not require that unit as “deposits” which were effected in gold should be convertible into gold, Chinese Government has no objection to such a provision if the U.S. prefers it.
Treasury will appreciate that no prior knowledge of paragraphs 1 to 4, and no knowledge whatsoever of paragraph 5 should be revealed to Chinese delegation. [Adler.]
  1. On September 3, 1943, the Chinese Ambassador transmitted to the Department of State for the Treasury Department a memorandum dated June 9, 1943, on the proposal for a United and Associated Nations stabilization fund together with a memorandum dated June 9, 1943, prepared by Chinese experts, giving general observations on the American and British plans for an international monetary organization; neither printed (800.515/805).