Office of the Historian

102.1/10230: Telegram

The Ambassador in China (Gauss) to the Secretary of State

Chungking, February 29, 1944—11 a.m.
[Received 1:24 p.m.]

393. To Secretary [of] Treasury from Adler. Re your 223 of February 12.

(1)
According to Maritime Customs data, China imported around 50 billion in ’43 while note issue increased by about 40 billion in same period. Domestic production of notes restarted in spring of ’42 and was at rate of about 18 million pieces monthly in notes of various denominations probably totalling about 5 billion for the year. While exact data for importation of notes in ’41 and ’42 are not available, it is known that imports for those years were greater than actual notes released for circulation. Thus China had on hand in China at start of year a supply of about 20 billion in notes if not more. It is claimed by responsible officials that a large part of the notes on hand in China—as well as of the 8½ billion in transit in India—are notes of small denomination which it no longer pays to issue. On the other hand it is known that Central Bank has some 500 notes in hand which it is afraid to issue because of possible adverse repercussions on confidence; largest note now in circulation is 200.
(2)
Current domestic production is now 25 million pieces per month, 17 million in Chungking and rest in losan new [sic] Chengtu, consisting solely of 100 notes. Other plants exist but not operating due to paper shortage, etc. Current expansion in note circulation probably around 6 billion per month and likely to increase with expansion of our military operations in this theater. Thus domestic production accounts for less than half of current needs. Paper and ink for domestic production must be imported over Hump. Of 150 tons of notes [paper?] now being flown in monthly, one-third takes the form of paper [notes?] for domestic production.
[(3)]
While no data are available for last couple of months, it may be assumed that current imports plus current domestic production roughly suffice to cover current needs so that supplies of notes on hand in China are around CN 20 billion and may be more. Above estimates are based on assumption that figures on note issue which Chinese Government has been giving us for last 2 years are accurate. Incidentally in spite of numerous inquiries on my part, whether by accident or design on part of officials involved, [I] have not received data on note issue for months subsequent to November 1943.
(4)
With respect to banks, all banks whether Government or private are required to keep 20% of their deposits with Central Bank in cash as reserve but this requirement has so far not been enforced in case of Government banks. Banks characteristically complain of shortage of notes in relation to business needs and claim their current cash holdings inadequate for current volume of commercial transactions. Bank of China largest bank next to Central Bank has about CN 2 billion in cash in hand in all its branches and in addition has a current account with Central Bank of CN 1 billion. Farmers’ Bank has CN 1 billion cash in hand in all its branches and about CN half billion in current account with Central Bank, its total deposits amount to CN 7 billion. Bank of Communications occupies an intermediate position between Bank of China and Farmers’ Bank. Note that private banks also have to keep current accounts with Central Bank usually not less than size of their cash reserve with it.
(5)
For information on current note production for and note shipment to China, please inquire from Security Bank Note and American Bank Note Companies. These two are most important foreign producers of notes for China, the only other at present being Water-low of London. [Adler.]
Gauss