893.5151/986: Telegram
The Ambassador in China (Gauss) to the Secretary of State
[Received 3:43 p.m.]
252. (To Secretary of the Treasury from Adler) Dr. Kung has asked me to transmit following message to you.
“In order to keep you abreast of most recent developments and in order further to clarify Chinese attitude on American Army disbursements in China I am forwarding you this message knowing and appreciating as I do your personal friendship for China and your sustained interest in fostering Sino-American cooperation. On January 28 Ambassador Gauss and General Hearn delivered a memorandum to the Chinese Government.
I saw them on February 3 and gave them a memorandum on our views concerning which I trust your Government has informed you. While most of the ground in the memorandum was covered in my previous message to you I should like to add the following.
- a.
- A rise in the black market price for U. S. currency has already resulted from the diffusion of the rumor that an adjustment in the exchange rate is being suggested by the U. S. The black market rate has soared from 90 to 115 in Kunming and from 82 to 115 in Chungking since January 1st; this has contributed to pushing up prices and to a further reduction in the purchasing power of fapi. As our difficulties as well as those of the American Army spring from high prices, the American Government would surely not desire to aggravate our currency problems and to give a further impetus to rising prices by requesting a higher conversion rate for U. S. military disbursements.
- b.
- As each fresh issue imposes a responsibility for convertibility and as our capacity to fulfil that responsibility will be impaired without provision of sufficient backing for fresh issue, we cannot expand notes in circulation making provision for a proportionate expansion of reserves. Both our current war effort and commercial intercourse with friendly nations especially the war will be greatly facilitated if we can sustain faith in the fapi and stop its becoming a scrap of paper.
- c.
- There exists, moreover, the danger that further gains may accrue to hoarders, speculators and insiders with consequent depletion of [Page 871] foreign exchange assets which China could more advantageously employ for reconstruction as you indicated in your memorandum transmitted by President Roosevelt to the Generalissimo. I strongly desire to avert this peril and it is scarcely necessary for me to indicate that a reduction in exchange rate at this time would lead to precisely those dangers which you want to avoid, would produce larger gains for speculators, insiders and hoarders and deplete China’s valuable foreign exchange assets.”
Above is a paraphrase. [Adler.]