893.515/8–348: Telegram

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

1426. Prime Minister Wong Wen-hao told me August 3 in strictest confidence that Executive Yuan is currently and urgently considering currency reform measures decided upon at top level conference last week with Generalissimo in Mokanshan. Prime Minister expressed his hope and expectation of public announcement within a week or 10 days.

Prime Minister stated Cabinet’s calculation that at black market rates total CNC now in circulation has value of only US dollars 30 million. As backing he stated Central Bank holds 2,600,000 ounces of gold and 50 million pieces of silver of various weights. He added Central Bank has no foreign exchange holdings but that hard currency holdings of Bank of China and other Government banks added [Page 379]to gold and silver given above provides total bullion and foreign exchange assets available for backing new currency in a total amount slightly under US dollars 200 million.

Plan envisages issuance new notes in large denominations and calling [in?] outstanding CNC. New issue would be under control of a commission established for this purpose, membership of which would include outstanding private individuals. Commission would observe (but apparently not control) emission new currency and make full reports to public each month.

As directly related measure Prime Minister told me Pei Tsu-yee is negotiating in Washington for 10-year loan of US dollars 300 million from US Government, proceeds of which, if secured, would be used to purchase silver for minting of coinage for general circulation. Proposed backing for this loan stated to be pledging export sales proceeds of Chinese tin, tungsten and antimony which Prime Minister estimates at present prices and present archaic mining and transport methods should produce US dollars 30 million per annum.

In conclusion, Prime Minister admitted foregoing measures do not affect directly central budgetary problem resulting from financing civil war, but he expressed to me his belief that they might arrest the rise in prices and “carry the country” for 1 or 2 years.

Sent Department 1426, repeated Shanghai 690 for Cabot and Casaday.

Stuart