Foreign Relations of the United States: Diplomatic Papers, 1944, China, Volume VI

893.51/5–2644

The Chinese Embassy to the Treasury Department ⁹⁸

undated

Aide-Mémoire

To meet the requirements of the United States Army in China the Chinese Government has advanced in toto the sum of eighteen billion yuan.

The United States Government has signified its intention of paying for its military expenditure in China which is greatly appreciated by the Chinese Government. As a basis of settlement of the funds advanced by the Chinese Government, United States Army representatives in China have made proposals at different times since February for the conversion rate to be fixed variously at: U.S.$1 to 100 yuan, 200 yuan, 120 yuan, and 150 yuan. The Chinese Government, however, is unable to consider these proposals to alter the exchange rate of 20 yuan to one U. S. dollar, because the lowering of the exchange rate under the present circumstances would further undermine confidence in Chinese currency, as well as stimulate the rise in commodity prices.

The Chinese Government, therefore, suggests the following solutions:

(a) The agreement for Reverse Lend-Lease as proposed by the United States and agreed to by China shall be signed and implemented as soon as possible.

(b) China undertakes to pay for land needed for the construction of air fields.

(c) China undertakes to pay for the food and lodging of the United States Army in China, such payments to be credited under Reverse Lend-Lease.

(d) For United States Army expenses other than those covered in (b) and (c) above, the Chinese Government offers the following alternative solutions:—

(1) China shall contribute twenty yuan as Reverse Lend-Lease, in addition to twenty yuan exchanged at official rate for every United States dollar credited to China. China is further prepared to raise such Reverse Lend-Lease contribution to forty yuan for each United States dollar placed to her credit.

(2) Alternatively, if the above arrangement (d. 1.) is considered not satisfactory, the Chinese Government shall be prepared to permit the United States authorities in China to sell in open market United States currency notes, United States Government bonds, gold and commodities for the purpose of securing Chinese currency needed to meet United States Army expenditure.

The Chinese Government also believes that the most effective measure of controlling inflation in China is increased importation of commodities for daily use, especially if such importation is combined with the arrangements under (d–l or 2).

It is to be observed that for every yuan issued, the Chinese Government and banks assume the obligation of its redemption according to law. In comparing China’s present foreign exchange accumulation to the amount of yuan issued China’s exchange reserve is infinitesimal and far below her minimum requirements, not to mention China’s postwar needs for rehabilitation and reconstruction, and her monetary stability which especially needs assistance. Hence any appreciable increase in China’s foreign exchange and reserve would greatly mitigate her difficulties and be of vital importance to development of American trade with China.

98. Handed to the Secretary of the Treasury on May 19 by the Chinese Ambassador. A copy was given President Roosevelt by General Shang Chen on behalf of Ambassador Wei, according to a memorandum of June 1 by the President, who wrote Secretary Morgenthau: “I think you might have a talk with the Chinese Ambassador in regard to the Chinese exchange situation. I do not think he feels it is much better.” Copy of the memorandum of June 1 obtained from the Franklin D. Roosevelt Library, Hyde Park, N.Y. See letter of April 19, from the Chinese Minister of Finance to Mr. Morgenthau, p. 915.