893.51/7–1147
Memorandum by the Chief of the Division of Chinese Affairs (Ringwalt) to the Director of the Office of Far Eastern Affairs (Vincent)
Subject: Attached memorandum95 presented to Adler by Governor Chang Concerning a Silver Loan
As suggested by Mr. Adler in paragraph 2 of his comments95 on the subject memorandum, the Chinese request for a silver loan as presently outlined can be considered merely as a request for financial assistance required to reduce social and economic chaos during the next six months to a year.
The Chinese memorandum does not provide any hope that a silver loan at this time would be effective in producing even a moderate degree of stability in the Chinese currency. It appears to me, therefore, that our considerations should be as to whether or not we wish to extend a general credit to alleviate the immediate situation.
In order to provide a new currency equal in total value to the present amount of currency in circulation (10 trillion CN) at a ratio of 25,000 to 1, the new currency would have to total CN400,000,000. As the Chinese propose a ratio of 5/7 ounces of silver per yuan, this would require approximately 286 million ounces of silver. At the present US price of approximately 70 cents an ounce, this would require $US200 million. However, if China were to acquire this amount of silver in a comparatively short period of time, the price might well rise to 91 cents an ounce, in which case the total cost would be $US260 million. The figure of $369 million mentioned in the penultimate sentence of paragraph 1, page 2, of the memorandum is incorrect in that it is based on the US Treasury evaluation of $1.29 per ounce, which figure would not be the purchase price for the Chinese. It is not clear from the memorandum whether the Chinese would wish to introduce at the outset 100 million or 400 million new units of currency. One hundred million 5/7 ounce units would cost $50 million at 70 cents and $65 million at 91 cents.
The statements in the memorandum with respect to seignorage can be disregarded in view of the fact that there has been a further deterioration in the value of the yuan, both internally and externally.