893.51/7741b: Telegram
The Secretary of State to the Ambassador in China (Gauss)
130. 1. In Department’s discussions with other interested agencies some apprehension has been expressed by those agencies that the last paragraph of the President’s message as revised in Department’s 125, January 24, may be subject to misconstruction by the Chinese as an expression by the President of willingness to pay U. S. dollars for Chinese dollars at the official rate. It has been suggested in particular that the words “the U. S. dollar equivalent of any Chinese funds made available” might conceivably be so interpreted.
2. Department is confident that you fully understand that in this Government’s view the entire purpose of the by now protracted discussions with the Chinese over the currency provisions of the proposed reverse lend-lease agreement is to create a mutually acceptable formula whereby the Chinese can make Chinese currency available at what is in effect a reasonable rate of exchange. The same purpose, of course, motivated the proposals made to the Chinese by Generals Somervell and Clay. In this whole question this Government has [Page 863] recognized the strong disinclination on the part of the Chinese to modify the official rate of exchange. Both the currency provisions of the proposed reverse lend-lease agreement and the Somervell–Clay proposals were designed to meet Chinese susceptibilities in this matter, in the one case by agreeing to accord the Chinese a reverse lend-lease credit for the amount of currency furnished over and above the official rate and in the other case by the denominating such additional currency as a “contribution” to the joint war effort. It has been clearly understood that if arrangements of the type under reference were to be concluded as part of a reverse lend-lease agreement, the additional Chinese currency supplied thereunder by the Chinese Government would be treated for accounting purposes almost as if it were a commodity and no U. S. dollar value would be assigned to it except as a part of general postwar settlement of lend-lease and related matters. This Government’s view has indeed been that this particular “commodity” has no real U. S. dollar value since it represents merely the according of proper and reasonable exchange facilities. It has been our feeling that our position in this respect should be safeguarded and we believe that it has been. We have felt, however, that in the interests of speedy promotion of the war effort it would be well to postpone any attempt to reach definitive agreement with the Chinese on this particular point until after the war.
3. Department feels sure that the above is already fully understood by the Embassy but for the reasons indicated at the outset of this telegram it has been considered desirable at the present time to recapitulate in this form the foregoing considerations and to request you to bear them in mind in the course of your discussions with the Chinese. In particular it is requested that you insure that there is no possibility that the last paragraph of the President’s message as contained in Department’s 125 of January 24 be misconstrued by the Chinese in the manner indicated in paragraph 1 hereof.