Foreign Relations of the United States, Diplomatic Papers, 1945, The Far East, China, Volume VII

893.5151/10–445: Telegram

The Chargé in China (Robertson) to the Secretary of State

Chungking, October 4, 1945—8 a.m.
[Received 10:45 p.m.]

1723. For Secretary [of the] Treasury from Adler.

1. Returned from Shanghai October 2.

2. Ministry of Finance issued statement Thursday 27th fixing Chinese Reserve Bank conversion rate at 200 to 1 CN dollar and providing for conversion between November 1 and March 31.⁵⁵ November 1 was fixed as opening day for conversion because Government believes it will have sufficient CN dollars on hand by then; a rush to convert as soon as possible after November 1 should be anticipated. The Manager of Central Bank issue September informed me that his printing press capacity in Shanghai was now CN dollars 70 billion monthly. It was generally believed in Shanghai that Dr. Soong was responsible for conversion rate with which Shanghai financial circles are on the whole satisfied. It is widely held that the conversion rate is generous as open market rate for Chinese Reserve Bank on 26th was 250 to 260 to 1 CN dollar and its trend was upward.

3. Official books of Central Reserve Bank show Chinese Reserve Bank note issue to be 4,233 billion. Some Central Bank officials believe that not all this was issued. However, as Japanese Army appears to have printed and issued Chinese Reserve Bank notes as needed, it is much more likely that the actual amount of Chinese Reserve Bank dollars in circulation is greater than the above official figure. According to one Shanghai banker, a conservative estimate of Chinese Reserve Bank in circulation is 8 trillion and others place it even higher. It is known that Japanese Army has within the last month burned some Chinese Reserve Bank notes in its possession. Ministry of Finance in its statement of September 27 indicated that “the kinds and total sum of issue of puppet notes already issued will be based on the report of the Shanghai–Nanking area, [by] Special Finance Commissioner of the Finance Ministry. Notes over the total sum reported and notes which do not coincide with any of the kinds reported to have been issued will not be exchanged.” It is not surprising, therefore, that a black market for Chinese Reserve Bank on which its value is less than official conversion rate is beginning to emerge.

4. Chinese Reserve Bank books show the following assets: 507,000 ounces of gold, 7,639,000 ounces of silver, 371,000 Chinese silver dollars and 100,000,000 yen. With respect to gold, Central Reserve Bank had 270,000 ounces on August 10, according to its published statement of that date. While Central Reserve Bank bought gold on open market after August 10, the major part of this increase resulted from transfer of between 140,000 and 200,000 ounces of gold from the Yokohama Specie Bank to the Central Reserve Bank around August 20 against which the Yokohama Specie Bank received Chinese Reserve Bank currency.

5. Government banks resumed business in Shanghai on October 1. There were 500 banks in Shanghai at the time of the termination of hostilities. All these banks which began functioning under the Nanking regime are to be abolished. Commercial and native banks in existence before the Nanking regime are to be allowed to continue but are to liquidate all business done in Chinese Reserve Bank. The Government’s objective is to reduce the number of banks in Shanghai to about 70.

6. U. S. dollar rate in Shanghai has been appreciating steadily during the last week, having been quoted at up to 900 before month end. It opened at 780 to 820 on October 1. Market while thin is expanding. Gold bar market still most active speculative market. In week before September 28 it rose from CN dollars 30,000 to 40,000 per ounce. With the announcement on September 28 in Chungking of an official price of gold of CN dollars 85,000 to 89,000 per ounce, the price in Shanghai jumped to around CN dollars 55,000. Smuggling of gold from Shanghai to Chungking reported. Banks not yet remitting Chungking to Shanghai but open market rate for such remittances is from 20 to 40%.

7. Prices in Shanghai have risen by over 50% in last two weeks and trend is still markedly upward, price of rice has risen 40% in last 2 weeks and semi-luxuries by much more as result of influx of U. S. Armed Forces. Prices are still quoted in Chinese Reserve Bank dollars but CN dollar is spreading as unit of value. Prices on the whole are about 25% of Chungking level. Shanghai factory production extremely low. This is outstanding characteristic of Shanghai economic situation and is leading to some labor unrest.

8. Position with respect to American and foreign business still obscure and will tend to continue so pending clarification of Chinese legal status of foreign corporations and of Chinese exchange rate and exchange control policy. American and foreign banks are taking over their physical premises and records. [Adler.]

Robertson

55. The Chinese (or Central) Reserve Bank notes circulating in Central and South China were the first puppet currency to be converted into Chinese national currency. According to Dr. Soong, the conversion of North China, Manchurian, and Formosan currencies was to be held in abeyance “… until such time as National Currency could be introduced in an orderly fashion and a fair rate established” (letter from Tsu-yee Pei to Assistant Secretary Clayton. October 2, filed under 893.515/10–245).