893.51/7753: Telegram
The Acting Secretary of State to the Ambassador in China (Gauss)
312. (1) The Department has noted the reference to the proposed shipment of $20,000,000 in U. S. currency to China for sale in the black market by Kung made in paragraph 8 of your 392 (Adler to Treasury) and in your 412, paragraph 4.76a
(2) A telegram of February 29 from General Clay to General Hearn requests Hearn’s views with regard to the advisability of suggesting to Kung that we furnish to the Chinese Government additional [Page 893] U. S. currency with which to purchase Chinese currency on the black market, such purchase to be under supervision of a “Board” on which there would be a representative of the U. S. Treasury. The “profit”, it appears, would be shared by the two Governments. Note is also taken of the statement in Adler’s reference telegram that Kung has indicated a preference for a “joint account” handling of the sales of the $20,000,000 U. S. currency requested.
(3) While the Department is in complete agreement with the general objective of finding means whereby the U. S. dollar cost of our Army expenditures in China will be reduced, it has some doubts with regard to the practicability of the “profit-sharing board” suggestion made by General Clay to General Hearn and desires clarification of the “joint account” suggestion of Dr. Kung. Treasury has similar thoughts on the matter and is telegraphing to Adler.77
(4) Dr. Kung’s declared purpose in selling U. S. currency on the open market is to bring down the black market rate on U. S. dollars. His is not, on the face of it, a profit-making project. It is therefore reasonable to expect agreement on Kung’s part, that, having been given control over the sale of the U. S. currency with an opportunity to accomplish his purpose, the proceeds of the sale of the U. S. currency furnished by the U. S. Army would be utilized to finance expenditures by or on behalf of that Army in carrying out its construction program. If Kung desires to place the proceeds in a “joint account” there would seem to be no objection to so doing provided the arrangement does not interfere with prompt use of the money for the purpose contemplated.
(5) If the foregoing proposal is not acceptable it is suggested that any further requests for U. S. currency by the Ministry of Finance for sale in China be treated in the following manner: one-half to be charged against existing Chinese Government credits in New York, the proceeds of the sale to accrue to the Ministry of Finance; and the other half to be supplied by the War Department with the full proceeds credited to the U. S. Army in China. Such a procedure would, in effect, accomplish the objective of the “profit-sharing board” procedure but would be less likely, it is believed, to lead to confusion and difficulties.
Please discuss the foregoing suggestions with General Hearn, Adler and Dr. Acheson and report your views to the Department. Substance of this telegram has been discussed with Treasury and War Departments.