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

893.5151/7–1844

The Ambassador in China (Gauss) to the Secretary of State

No. 2781

Chungking, July 18, 1944.
[Received August 10.]

Subject: Exchange Transactions for Profit.

Sir: I have the honor to enclose copy of a circular instruction issued by the Embassy to American diplomatic and consular officers in China cautioning them against exchange transactions for profit.

I have deemed it desirable to issue this circular in view of information reaching me that Army and Navy officers and personnel of Government war agencies in China are purchasing drafts and other exchange transfers on “blocked” accounts in The National City Bank of New York, issued by the United Clearing Board of certain American and other missionary and relief organizations in China.

These transfers on “blocked” accounts in The National City Bank of New York—principally in the form of bills of exchange—are being sold on the Chungking market at an exchange rate of about $115 Chinese currency to $1 U. S. U. S. Currency is being sold on the open market at Chungking at rates from $180 to $200 Chinese currency equal to U. S. $1.00. It is possible, therefore, for persons receiving U. S. currency in payment of salaries and allowances to convert that U. S. currency on the open market at rates varying from 180 to 1 to 200 to 1, and to use the Chinese currency so obtained to buy United Clearing Board drafts on “blocked” accounts in New York at 115 to 1.

While the exchange on New York is on “blocked” accounts, it is my understanding that under Treasury licenses, withdrawals may be made up to $500 a month from such accounts, for living expenses of families, and also for payment of insurance premiums. There is, therefore, substantial temptation to American service personnel to purchase these drafts and profit by the difference in the exchange rates.

The Treasury Attaché at Chungking is informing the Treasury Department of the details of purchase of United Clearing Board drafts and transfers by military, naval and other Government personnel at Chungking.

I am of the opinion that if the Government wishes to stop these exchange transactions for profit, an indication to the United Clearing Board of disapproval by the Treasury Department of sales of drafts or exchange to American service and civilian personnel would result in discontinuance of such sales.

Meanwhile, I have considered it advisable to caution all Foreign Service personnel on the subject of exchange transactions for profit. I do not have such control over the personnel of the war agencies at Chungking—O.W.I., F.E.A., and I.D.C.—as to permit me to issue similar instructions to such personnel, and, of course, I have no control over Army and Navy personnel in China.

Respectfully yours,

C. E. Gauss

[Enclosure]

The Ambassador in China (Gauss) to American Diplomatic and Consular Officers in China ¹⁰

Circular No. 49

Chungking, July 18, 1944.

Sirs: With reference to the arrangements under which American Foreign Service personnel in China have been permitted to receive U. S. currency in payment of salaries and allowances and to sell such currency in the open market, and with reference also to the cost of living allowances granted by the Department of State to American Foreign Service officers and American personnel of diplomatic and consular offices, I deem it necessary to caution all Foreign Service personnel against exchange transactions for profit.

In this connection, it has come to the attention of the Ambassador that certain American Government personnel in China, receiving pay and allowances in U. S. currency and permitted to sell such currency on the open market, have used the Chinese currency proceeds of such sales in part to purchase U. S. dollar savings certificates or bonds of the Chinese Government, or, more recently, to purchase drafts or exchange on “blocked” accounts in a New York bank issued by a group of American and other missionary organizations operating as a United Clearing Board. While it is the understanding of the Embassy that the sale of drafts and exchange transfers on a “blocked” account in New York by the United Clearing Board has had tacit approval of the financial authorities concerned and is designed to assist missionary and relief organizations in their financial difficulties in connection with operations in China, I have to point out that relief to American Government personnel has been extended by the use of U. S. currency and the granting of cost of living allowances, and it is not unreasonable to expect that American Foreign Service personnel shall not engage in exchange transactions for profit in violation of the Foreign Service Regulations.

Very truly yours,

C. E. Gauss

10. Copies transmitted to the Consulate General at Kunming; Consulate at Kweilin; Consulate at Tihwa; and the Secretaries of Embassy on detail at Chengtu, Sian, and Lanchow.