The Consul General at Shanghai (Josselyn) to the Secretary of State 52
[Received February 2—7:19 a.m.]
116. This is from Commercial Attaché53 for State and Commerce in reference to Department’s 82, January 21, 5 p.m.54 Situation described was true for about a fortnight after receipt by banks of instruction of January 10 from local office of Ministry of Finance. Chase Bank manager interpreting instruction as making permissible remittances by means of so-called Authorities to purchase which provides for payments against documents in New York. Close translation of the instruction, however, seems to preclude all forms of remittance abroad based on receipt of foreign currency notes here, and Chase Bank manager has now decided no longer to provide this form of accommodation. National City Bank has not even provided authorities to purchase for customers but has stuck closely to its interpretation of the instruction. (Sent to Dept as Shanghai Serial 118 , Jan 28, 9 a.m., repeated to Chungking as 52).
Thus, bank accommodations for the financing of imports from the United States appear impossible, for the time being, except through Bank of China which probably in meritorious cases would still accept blocked for free funds. No one at the moment wants to test the question as to whether the customs would still pass export shipments of US currency notes for fear of customs refusal, thereby establishing an undesired precedent. The American banks would not attempt such shipment as the instruction clause “or any other transactions for payments abroad” seems to preclude it.
There are other channels through which remittances to the United States are possible, such as the United Clearing Board for mission, education and relief agencies, which now sells upwards of 1 million dollars US monthly in the Shanghai open market, lately at rates as much as CN 100 dollars better per US dollar than the prevailing rate obtainable at exchange shops. However, such means are obviously limited as compared with demand.
There is a feeling among some in financial and trade circles that despite the intimation in the instruction to banks that this measure is to be in force only temporarily or briefly pending the setting of an official exchange rate, the actual setting of an official rate may still be considerably protracted.[Page 929]
It seems logical to conjecture that, from the Government’s point of view, there is no urgency, with certain commodity exceptions, to facilitate general imports pending the settlement of other major issues. Chinese Government well knows that the setting of a rate [say] at CN dollars 1500 to the US dollar, which is slightly above the current [Shanghai] open market rate, would tend to speed up imports but would not [aid] exports, since the latter are stymied not only by the lack of and high cost of transportation facilities but also by prohibitive inflationary prices in the interior. Considering the degree of inflation, a rate of exchange which would make exports possible might have to be manyfold the current Shanghai rate. In the meantime immediately pressing import needs are being provided by UNRRA and by the reported US 20 to 30 million dollars Export–Import Bank loan for raw cotton and there are indications that Chinese officialdom is thinking in these terms and may also be in somewhat of a quandary as to how to deal with this and other related situations. [Calder.]