893.51/5–2644
Memorandum of Conversation, by the Assistant Chief of the Division of Chinese Affairs (Meyer)
| Participants: | Mr. Bell, Under Secretary of the Treasury, Mr. White and others from Treasury |
| Major General Clay and Colonel Foster from War Department | |
| Messrs. Stanton, Meyer, McGuire, Collado, Luthringer99 from Department of State. |
A meeting of the persons listed above was held in Mr. Bell’s office in the Treasury Department at 10 o’clock this morning for the purpose of discussing the nature of the reply which should be sent to a letter dated April 19, 1944 (copy attached1) from Dr. Kung to Mr. Morgenthau on the subject of an understanding in regard to the question of the method for supplying Chinese currency for the use of the United States Army in China. The letter mentions inter alia that despite great difficulties created by the shortage of notes and the increasingly difficult economic situation the Chinese are doing their best to continue to supply the United States Army with notes and are determined that nothing should be allowed to interfere with present or contemplated operations of the United States Army in the China Theatre. He states that this position is taken in spite of the absence of the receipt of an equivalent in U.S. dollars for the Chinese currency supplied except in the month of March 1944 when a payment of US$25 million was made by the American Government. Dr. Kung then goes on to explain the difficulties involved in supplying the notes needed by the American Army in China and the impossibility of agreeing to the establishment of a rate of exchange for this purpose approximating the black market rate as previously requested by the United States Army authorities. He states that the principal difficulty in the way is the question of the rate of conversion and that although the Chinese are trying to find a way out his basic approach is that the matter is not one for bargaining.
He makes the interesting statement on page three that the Chinese are not making any request for a new loan.
Attached to the letter is a statement of the payments made by the Chinese at the request of the United States Army authorities from September 1942 to April 1944 totaling approximately CN$18 billion.
Dr. Kung’s letter was delivered to Mr. Morgenthau by Ambassador [Page 924] Wei who recently returned to Washington from China. At the time Ambassador Wei delivered the letter to Mr. Morgenthau he left with him an aide-mémoire, (copy attached2), in which certain solutions for the problem are suggested. It may be inferred from the last paragraph of the aide-mémoire that the solutions suggested are designed to increase China’s foreign exchange reserves for use in the post-war period. It is also of interest that in certain contingencies the Chinese Government would be willing to permit the United States Government to sell United States currency on the open market for the purpose of obtaining Chinese currency for United States Army use.
After considerable discussion it was agreed that a preliminary reply should be made by Mr. Morgenthau to Dr. Kung acknowledging the receipt of his letter and expressing appreciation for the felicitations contained therein. The reply would also state that the subject was receiving the serious attention of the American authorities and that an appropriate reply would be made in the near future. It was also agreed that a copy of Dr. Kung’s letter and of Ambassador Wei’s aide-mémoire would be sent to Chungking by air courier for the information of the Ambassador, the Treasury representative, and the Army authorities concerned. It was also agreed that the aforementioned parties in the field would be informed by telegram of the nature of the proposed final reply to be made to Dr. Kung’s letter. It was proposed that the draft suggest the continuation of the present arrangement whereby the Chinese authorities are supplying Chinese currency to the American Army at the rate of approximately two and one-half billion Chinese dollars per month and under which the American Government would presumably be obligated to place at the disposal of the Chinese Government the sum of US$25 million monthly. It was confirmed in the meeting that the March payment under this arrangement had been made as stated in Dr. Kung’s letter and that no payments have been made for April and May. It was proposed that payments for April and May be made in the near future but that they not be made before the final reply to Dr. Kung’s letter is sent. It was the concensus of opinion that Dr. Kung’s letter was the most favorable response which has yet been received from him on this subject. Mr. White suggested that if the present arrangement as described above should not prove satisfactory Dr. Kung be informed that, as a trial, the American Army might avail itself of the suggestion that U. S. currency be sold on the open market for the purpose of acquiring Chinese dollars. Doubt was expressed, however, that the open market could absorb the amount of U. S. currency necessary to finance United States Army expenditures in China for an indefinite period.