893.5151/9–1648: Telegram
The Ambassador in China (Stuart) to the Secretary of State
[Received September 16—8:01 a.m.]
1705. Pass to Treasury and ECA. Local press on August [September?] 13 carried reports originating Ministry Finance that total of GY 230 million released for conversion gold, silver and foreign currencies. Report did not indicate value of conversion against old CNC. Further stated 1937 fapi issue was CNC 2 billion, and under current conditions GY 4 billion will be necessary meet demands for country.
If statement correct, present circulation above GY 5,000 million since CNC circulation August 19 equivalent GY 225 million. Between August 19 and first September CNC note issue alone increased by more than 50 per cent, although substantial portion probably not in circulation but held in banks following conversion to gold yuan. No data presently available gold yuan issue. Will report further.
Clear that continuation deficit financing by expansion note issue generating mounting inflationary pressure which cannot indefinitely be contained by even most stringent enforcement measures.
Finance Minister reported to Legislative Yuan yesterday eight-ninths of ordinary budget for last half 1948 expended July and August, [Page 405] but he hopes for balance in ordinary budget remainder year as result unexpectedly stable price situation now prevailing. No mention extraordinary military budget.
Financial black markets strengthening. Tientsin closing rate 13th at 5.75. Peiping reports large transactions up to 5.15 on 13th, general market at 4.80 on 14th with pressure from police. Canton reported GY at premium with rate for 13th at 3.93. Mukden on 14th dollar rate up to 5.16 with gold buying rate NEC 115 million equivalent to GY 383 or US dollars 96 per ounce. Premium gold over dollars result geographical situation in which gold has monetary value surrounding area but accessible commercial market for dollars greatly limited.
Sent Department 1705, repeated Shanghai 812.