102.1/11111b: Telegram
The Secretary of State to the Ambassador in China (Gauss)
810. To Adler from the Secretary of the Treasury. Reference cable no. 752, May 31, 1944.
In substance, Dr. Kung proposed in the memorandum which accompanied his letter to me dated April 19, 1944,6a the following:
- 1.
- That the Reverse Lend-Lease Agreement be signed and implemented, and that China pay for land needed for (a) the construction of airfields and (b) for food and lodging of the U. S. Army in China, such latter payments to be credited under reverse lend-lease.
- 2.
- That the U. S. Army expenditures not covered under the Reverse
Lend-Lease Agreement be met in either of two ways:
- (a)
- China to contribute 20 yuan as reverse lend-lease plus 20 yuan exchanged at the official rate. In addition, “China is further [Page 931] prepared to raise such reverse lend-lease contribution to 40 yuan for each II. S. dollar placed to her credit.”
- (b)
- China to allow the U. S. authorities to sell gold, currency, U. S. government bonds and commodities in the open market for the purpose of securing Chinese currency needed to meet U. S. Army expenditures.
We had proposed to tell Dr. Kung in answer to his letter that when the U. S. Army approved, we would place an additional $25 million to the account of the Chinese Government. It was felt that this could be done, since the yuan advanced to the U. S. Army is already in sufficient amount to warrant such action.
In response to his memorandum, we had also proposed to take up his offer to sell gold and currency in China, but on the joint account of China and the United States. As we have indicated in our previous cables, it is agreeable to the Treasury that we participate jointly with the Chinese in the sale of gold and currency, although, for your information, we seriously doubt that a sales program of gold and currency could satisfactorily finance our military expenditures, nor are we certain of the exact nature of the impact of such a program upon the Chinese economy.
Thus, we are going to indicate to Dr. Kung that any decision as to the adequacy or desirability of a program of sales of gold and U. S. currency could be made only after we had sufficient experience with such a program and that after we had tried the program for a while we would be in a better position to evaluate the ability of this financial technique to help meet both Chinese and American requirements.
In view of the fact that Chinese yuan were still being received and negotiations were still going forward with a view to obtaining a reasonable exchange rate, it was felt that no response to the reverse lend-lease proposal needed to be included in our reply.
Now, however, we have received word that Dr. Kung is coming to the United States to participate in the Monetary Conference and an answer to his letter can therefore be postponed. While he is here our mutual problems can be discussed in detail and we are cabling Dr. Kung substantially to this effect. You will, of course, be kept fully informed and advised of our discussions here with Dr. Kung on the above matters.
We assume that this cable will be brought to the attention of Ambassador Gauss and you should transmit a copy of it to the appropriate U. S. Army representatives in China and before returning to Washington you will, of course, be fully acquainted with their views about these matters so that we can receive a full report from you.
In addition, we would also like to have immediately your views on the above program. [Morgenthau.]