The Ambassador in China (Stuart) to the Secretary of State
[Received 10:39 p.m.]
1373. Inflation continues apace with no sign development of moderating conditions or ability Government to take Draconian measures otherwise imperative. As reported by Shanghai, all signs point to fact dollar reserves have been exhausted. After initial export [spurt [Page 376]of exports]29 ore [in] June resulting from exchange surrender Ctf30 plan for which much was hoped, accelerating rise of US dollar in black market with Ctf’s failing to keep pace has resulted in loss once more of incentive exporters to export. Open market rate plus value Ctf’s now only half black market dollar rate. Evidence increasing that paralyzing effect of inflation, now approaching galloping phase, has more than counterbalanced speculative but nevertheless stimulating influence of uninterrupted price rise. Inflation-caused [slash] in civil airline schedules, universally visible evidence of commodity hoarding, and increased frequency on more hectic days of general boarding up of shops are cases in point. So long as civil war continues and Government fails to adopt logical economic measures and to demonstrate ability to enforce them, the end of this devastating spiral is not yet in sight.
Sent Department 1373; repeated Shanghai 657.