893.51/5–2644
The Chinese Minister of Finance (Kung) to the Secretary of the Treasury (Morgenthau)91
Dear Mr. Secretary: I am in receipt of your letter of March 1492 and am taking the opportunity of Ambassador Wei’s return to send you a reply. Needless to say I profoundly appreciate the contribution made by the Americans associated with the Stabilization Board of China to Sino-American financial cooperation and understanding and am sure that your representative in Chungking and our representatives in Washington will continue to serve the same cause as effectively as before.
Ambassador Wei and Mr. T. L. Soong reported to me your conversation at the farewell dinner you gave them immediately prior to their return, in which you asked them to convey to me your desire for a speedy settlement of the question of U. S. Army expenditures in China. I deeply appreciate your concern over this matter and, therefore, would like to take this occasion to mention that the problems to which I called your attention in my communications to you of January 2493 and February 694 have increased, are increasing, and in all likelihood will continue to increase, in acuteness and severity. China’s economic difficulties have now become almost her major problem and preoccupation, and it would be impossible to maintain our armies in the field and to prosecute the war against the common enemy without the maintenance of confidence in our currency which has become increasingly threatened and undermined by the exigencies of war and the unique obstacles in our path. We had all been hoping for the removal of China’s blockade some time in 1944, but now that appears to be a remote contingency and no immediate relief can be expected from that quarter.
However, despite great difficulties created by the shortage of notes, which have already compelled us to restrict cash outpayments by the [Page 916] banks for commercial and industrial purposes, we are doing our best to keep the U. S. Army supplied with notes so that their activities can continue without interruption. It is to be regretted that we have not yet been able to arrive at an agreement with the American Army authorities here as to the conversion rate for U. S. Army expenditures in China. Nevertheless, we are resolutely determined that nothing should be allowed to interfere with the present and contemplated operations of the U. S. Army in the China Theatre. We have therefore continued to advance all the Yuan needed to cover U. S. Army requirements in spite of the absence of such an equivalent in U. S. currency and in spite of the fact that except for the US$25 million received in March, we have not received any U. S. dollar counter-part of the Yuan which we advanced. Over 10 billion Yuan was paid out by the National Treasury, Ministry of Finance, up to the end of March. A further 7 billion Yuan was advanced by the Central Bank of China, of which 4.2 billion Yuan was for the construction of airfields and 2.25 billion Yuan for the account of the U. S. Army in China. I am appending a detailed list of these expenditures for your reference.
However, we should be courting disaster if we continue to issue currency notes for U. S. Army needs without at least a minimum replenishment of our reserves in foreign exchange, gold and silver. The U. S. Army would appear to overlook this consideration in desiring that we furnish it with Yuan on terms involving a sharp revision of the exchange rate. Were we to accede to this desire to revise the rate of 100 Yuan to 1 U. S. dollar, we would be depreciating our currency by 500 percent which would be fatal in our present situation. The psychological effect alone of such a sharp reduction in the exchange rate would be very serious and would, of necessity, lead to a rise in prices and dangerous loss of confidence in the Yuan. Since the basic idea behind the plan for a United Nations Monetary Conference, which is being prepared under your leadership, is sound money and stable exchange rates, I am sure you appreciate the reasons why we are unable to take steps to depreciate our currency.
We are not making any request for a new loan because we are well aware of the difficulties that [you] may encounter in granting of a loan at the present time. We are doing our best to contribute our share in facilitating the work of the U. S. Army in China by advancing large sums for the payment of construction and other activities, and by providing land for the construction of airfields. As President Roosevelt has informed President Chiang, the United States, in order to cover all of its military expenditures in China, including such maintenance as well as construction, is prepared to place to China’s account the U. S. dollar equivalent of any Chinese funds made available under general arrangement with U. S. representatives [Page 917] in China. The only difficulty in the way of our reaching full agreement in current negotiations is the rate of conversion. Since, for reasons stated above, we cannot depreciate our currency, we have been trying to find other ways of solving the problem. My basic approach to this whole matter is that it is not a subject for bargaining. We have already fought shoulder to shoulder for over two years. We have shared considerable sacrifices and, I am sure you agree with me, we should each contribute according to our capacity for the common victory.
I wish to convey my best wishes for your continued good health. With kindest personal regards,
Yours sincerely,
- Handed to the Secretary of the Treasury by the Chinese Ambassador, May 19. See Chinese aide-mémoire to the Treasury Department, p. 921.↩
- Not found in Department files.↩
- See telegram No. 166, January 26, 3 p.m., from the Ambassador in China, p. 863.↩
- See telegram No. 252, February 8, 11 a.m., from the Ambassador in China, p. 870.↩